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UK fiduciary management survey shows increase in full delegation

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Full delegation of UK pension fund investment management continues to grow strongly, showing a 20% increase over last year, according to KPMG’s 2013 survey of the UK fiduciary management (FM) market.

The survey covers the period from 30 June 2012 to 30 June 2013.

KPMG said asset under management (AUM) growth was slightly lower than in the previous year, which was consistent with its expectation that FM would continue to grow over the medium term, though at a more normal growth rate.

Assets run by fiduciary managers on a fully delegated basis currently stand at £29bn (€34.7bn), about 2.6% of the UK market, run across 211 UK pension scheme mandates.

Alongside this there remains a large partial delegation FM market covering an additional £30bn of AUM across 135 mandates.

The survey of 11 core providers also showed that 91% of full delegation mandates have AUM of less than £250m, compared with 88% in 2012, highlighting an increasing interest in fiduciary management from smaller UK schemes.

Implemented consultants continue to hold most of both the mandates (75%) and market AUM (69%), but their market share has fallen from previous years.

A review of the overseas presence of UK FM providers found that the global experience was significantly different, with asset managers and specialist providers having materially more overseas AUM than implemented consultants.

For schemes engaged in FM, the use of independent advice to monitor and challenge a fiduciary manager has increased significantly – 53% of mandates now operate with independent advice, compared with only 30% in 2012.

Calum Brunton Smith, head of fiduciary manager research at KPMG Investment Advisory, said: “We think it’s best practice to have an independent adviser.

“The number of schemes using independent advice is growing because they have greater awareness of the market.

“And the market has become increasingly competitive, so trustees are not considering just one provider.”

But Brunton Smith said there was still an important gap in terms of FM transparency.

“There is a compelling argument for some clients for using fiduciary managers, as they can provide increased efficiency and expertise in negotiating volatile investment markets.

“But we don’t have the proof to say this has added value to the fund.

“You would never appoint an asset manager without knowing their track record, but trustees are actually in this position when selecting a fiduciary manager.”

He suggested possible indicators fiduciary managers might publish, for a basket of clients, could include how growth assets had performed compared with their value when the mandate started, and changes in funding levels.

Brunton Smith also said it was still difficult for trustees to ascertain what the fee scale was.

The survey also showed that specialist FM providers account for the largest relative market share increase (34%) when compared with other FM models.

Patrick Disney, managing director at SEI Institutional Group for the EMEA region, said: “The survey reflects a clear recognition among pension schemes of the benefits of partnering with a specialist provider that can promise an exclusive focus on delivering customised FM solutions.”

SEI has secured 11 new FM mandates during the survey period.

Meanwhile, KPMG is planning a survey of pension fund trustees engaged in FM, to be published next spring.

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