Investment managers should include costs such as outsourced broker research in their fees to pension funds and not through hidden commission charges, according to recommendations in the Myners report on institutional investing.
In the report, Myners argues that broking commissions made by asset managers are not subject to sufficient examination, but passed on regardless as a charge to the client.
“ This is a new proposal that has never been trailed before. It is a serious cost, which is not exposed to as much scrutiny as it should be.
Myners says costs for brokerage business should be recouped by the asset manager – be it in higher fees – but not by putting them in commission charges where they are not visible.
The Gartmore chairman also criticised the reluctance of investment managers to become more involved in the companies they invest in - arguing that there should be a clearer duty for fund managers to act in shareholders’ interests.
“ I don’t accept that fund managers do actually challenge companies about their strategies.
“ There is a need for engagement.”
Paraphrasing investment guru Warren Buffet, Myners noted that the gin-rummy approach to investment, where you lay down all your bad cards, was not successful on a long-term aggregate.
Myners also took a swipe at the over-precise use of index benchmarks by managers, which he said were causing “unnecessary distortions” and which he added did not always capture the risk/return requirements of pension funds.
Highlighting the case for UK funds in the Vodaphone/Mannesman takeover, he pointed out that UK index-tracker funds increased their weightings significantly in the merged group as a result of the Vodaphone purchase, but would have sold the same stock had the takeover been from the German side.