Posting the profits
Gerry Degaute is finance director of Post Office Pension Trustees in the UK, which runs two major Post Office pension schemes with combined assets of £15bn (E21.3bn). For the last 18 months, the funds have been operating a commission recapture scheme which has proved very lucrative.
On an annual basis, the scheme brings in at least £100,000 for the pension fund. It appears to be working very smoothly. We have been doing this with most of our fund managers," says Degaute. Seven out of 10 of the Post Office pension scheme fund managers have been happy to direct their trades through two commission recapture schemes, one of which is run by Frank Russell Securities, he says.
The pension fund receives quarterly cheques - a proportion of the commission paid to brokers on its behalf. Not all trades are directed through the commission re-capture scheme, he says. It has been made clear to the fund managers that directing commission should not have an adverse effect on investment performance, he says. "Client-directed brokerage is the tail and it shouldn't wag the performance dog," says Degaute. Investment performance makes more money for a fund than commission recapture, he points out.
In order to make sure the scheme does not interfere with best execution, the pension fund only gives the order to direct be-tween 10 and 20% of trades through it. "That is a target percentage, and if it is not achieved because of concerns about best execution, that is not something I would worry about," says Degaute."