The UK’s fiduciary management market now manages more than £70bn (€90bn) in assets after strong growth from smaller pension funds using implemented consultancies, research shows.
The latest annual report from KPMG showed schemes also warming to full delegation to third-party companies, with it now accounting for the lion’s share of AUM.
Nearly 3.5% of the UK’s £1.13trn in defined benefit (DB) assets is now managed under fully delegated mandates.
This year’s survey included an additional fiduciary manager and saw total assets under fiduciary management hit £72bn, within 508 mandates.
AUM growth from 2013 hit 17% organically, and 22% when including the additional manager.
The use of fully delegated mandates jumped from 211 to 303 in number, accounting for 60% of the market.
Of the three types of providers – implemented consultants, specialist providers and investment managers – the former still continues to dominate the market, as smaller schemes account for majority of demand.
KMPG’s research showed that 80% of fully delegated mandates were handed to implemented consultants, with 17% to specialist providers and 3% investment managers.
However, it also pointed out that specialist and investment managers were gaining ground, taking on fewer, larger mandates.
Specialist providers accounted for 22% of assets from their 17% market share, while investment providers accounted for 9% from their 3% share.
This was a significant change from 2013, when investment managers only managed £578m from larger schemes (over £500m) compared with £2.7bn in 2014.
Growth from non-consultant providers generally came from open tenders.
However, KPMG highlighted a significant lack of competition in appointments, with only 11% of contracts for implemented consultants going to open tender.
Overall, 81% of mandates saw no other provider offer a quote, and, of the 19% that did, only 11% were run openly.
Larger schemes were also most likely to use an independent adviser to monitor fiduciary managers.
As a result, 30% of fully delegated mandates with investment managers were independently monitored, compared with only 7% of implemented consultants.
The advisory firm said 2014 saw the first instance of a UK pension fund changing its fiduciary manager, as providers began to reach three-year track records with clients.
KMPG predicted 36% of schemes would change fiduciary managers in 2017 as more contracts reached their three-year benchmark.
Anthony Webb, head of fiduciary management research at KPMG, said: “Three years is a natural review point for providers to review the performance of their provider.
“We anticipate that, as more schemes begin to review their FM provider’s performance, we will see the necessary kick-start to creating a truly competitive market.”
Combined with partial-delegation mandates, the total number was 508 UK schemes using fiduciary management, up from 346.
In a significant change from 2013, one-third of partial mandates resulted in providers operating the growth portfolio, up from 23%, while those running a single asset class fell by 12 percentage points to 53%.
Implemented consultants dominated the partial-management space even more, accounting for 89% of mandates and 81% of the £34bn in AUM.
Specialist providers took up 12% of AUM from 7% mandate share as investment managers had 7% of assets from 3% share.
The 16 mandates from schemes larger than £500m accounted for two-thirds of partial delegated AUM, with only three being managed by non-consultant providers.