Appointing a fiduciary manager does not mean trustees will lose a grip on investment strategies, says Steve Smith, chairman of trustees of the Univar UK pension scheme
• Fiduciary assets in the fund have grown sharply in recent years.
• Univar’s trustees learned a great deal from interacting with the fiduciary manager.
• The switch to fiduciary management has not had a significant impact on Univar’s costs.
The growth of assets under fiduciary management in the UK over the past five years shows that the concept is gaining popularity among pension schemes. Fiduciary assets have grown from £54bn (€68bn) in 2012 to £123bn (€144bn) last year, according to KPMG.
However, the recent investigation carried out by the Financial Conduct Authority (FCA) has highlighted weaknesses in how fiduciary management is sold and delivered to UK pension schemes. The investigation has dampened the enthusiasm for the concept, and prompted managers and trustees to review their approaches.
Yet, there is no shortage of pension schemes expressing satisfaction with their choice of fiduciary management as a governance model. The UK pension scheme of Univar, a US chemical company, is one those who see the concept as overwhelmingly positive. The scheme is an early adopter of fiduciary management, having appointed SEI to the role in 2010.
Steve Smith, chairman of board of trustees, says the scheme’s decision to delegate investment decisions was partly a result of the significant deficit at the time. But there were other reasons too.
“It probably stems more from the lack of success with and lack of belief in the investment managers we had at the time. We appeared to be relying on the investment managers’ house position on investments, but we were basically treading water. When we worked our way through our investments, we realised at times that we would have better off being invested in passive schemes rather than in active management. That caused concern among trustees,” explains Smith.
“The moment we came across the concept, we realised we should look into it further,” he adds. The scheme spent several months investigating fiduciary management, which at the time was in its infancy. “It appeared to us that instead of being involved to the degree that we were, moving to a situation where we actually delegated investment decisions would be ideal.”
Three firms turned up to the beauty parade, including Towers Watson, which was the scheme’s adviser at the time, but SEI took the mandate. “We were really impressed with their approach,” says Smith. Almost at the same time, the company’s pension scheme in US also appointed a fiduciary manager.
Smith recalls that one of the factors that led to the appointment of SEI was the firm’s ability to offer exposure to many asset classes. He explains: “It felt like a release. We had finally given this important task to someone who would manage it properly and did not have any rules in terms of what we could and could not invest in.”
Some of the trustees were slightly nervous about appointing a fiduciary manager, according to Smith. “They felt that it may have been a step too far, that we needed to keep control. Those who were in favour explained that whilst we delegate investment decisions to these people, we still carry responsibility for it, and are still able to hold them to account. In the end, we were able to persuade them that this was in the best interest of members. I think when they look back at it now, they think it was a really good decision,” says Smith.
The scheme trustees learned a great deal from interacting with the fiduciary manager, says Smith. “We sat down with the manager and spent probably a good six months painstakingly going through our strategy. We discussed what we wanted to achieve, how much risk we wanted to take and how we wanted to manage different types of assets. It was eye-opening for us, and it gave SEI the framework to build a strategy that worked for us.”
“SEI asked us to set realistic targets for them in terms of the way we wanted to grow the assets, and they came up with a plan that was consistent with our goals”
“SEI asked us to set realistic targets for them in terms of the way we wanted to grow the assets, and they came up with a plan that was consistent with our goals,” adds Smith.
In terms of costs, the switch to fiduciary management has not had any significant impact, according to Smith. “Costs are probably slightly higher than what we were paying before the switch. Having said that, with our previous managers we were probably picking up extra costs, as their work was not co-ordinated efficiently.”
The trustees’ job has changed significantly since the appointment of a fiduciary. The board regularly meets with SEI to discuss performance. However, plenty of time is spent discussing improvements to the current model, during meetings prompted by the board as well as the fiduciary manager.
“The relationship with our advisers today is very different from 10 years ago. Now we are part of a group of people who are quite proactive with each other, and trustees have learned a great deal as a result,” says Smith.
The scheme also discusses SEI’s performance, on an informal basis, with the other advisers – Willis Towers Watson, DLA Piper and KPMG.
Since the pension scheme embraced fiduciary management, the assets have grown from about £170m to the current £300m. This includes some contributions from the sponsor, which were agreed as part of the scheme’s journey plan to full funding.
Smith says he was surprised to find such controversial evidence on the fiduciary management market in the FCA report. “We feel that SEI are transparent with us. They are certainly transparent about their fees. I suspect that if there are issues such as the ones described in the report, which we haven’t experienced, one would want to question the organisation that was delivering the mandate,” says the chairman.
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