UK – The head of the UK’s 18 billion-pound (26.8 billion- euro) Electricity Supply Pension Scheme says the ability to control transaction costs is a factor in the selection of asset managers.
“We certainly think managers need to deliver on acceptable trading costs,” said the scheme’s chief executive Richard Barlow. “The ability of managers to handle these issues is one thing to look at in terms of manager selection.”
He added: “We hire managers and expect them to do the job.” He noted that an average of one percent of funds’ value is “wasted away on commissions and so on” in a year.
The scheme is the UK’s fourth largest and has around 120 active portfolios and some 30 asset managers.
“Traditionally trustees spend a lot of time haggling over management fees not consulting fees,” Barlow said at an event organised by State Street and crossing network E-Crossnet, in which the Boston-based bank took a stake earlier this year.
“We think that crossing is one way of reducing transaction costs,” Barlow said. But he added: “I don’t think that crossing is right at the top of the priority” list for most pension trustees. “The number one priority for trustees is assets and liabilities.”
“In my experience, even if you have a specific committee structure – you’ve still got a lot of matters to talk about at each meeting.”
He said the electricity scheme’s trustees are provided with transaction cost data to enable them to challenge managers on costs. He said large, well-resourced schemes had advantages in terms of managing costs, although smaller schemes also had access to advisors.
Barlow explained that the scheme built its own internal crossing system for around one million pounds when it underwent a portfolio shift five years ago. The system, he said, paid for itself 20 or 40 times over.
E-Crossnet chief executive Nigel Foster told the briefing that the company will likely be profitable this year, on revenues of around six to seven million pounds.