Lost Opportunity for UK Pension Funds

(March 16, 2010) – Despite an overwhelming willingness to negotiate fees with investment managers, even for relatively small mandates, UK pension fund trustees failed to take advantage of this, a survey by consultancy Lane Clark & Peacock (LCP) showed.

The result: Trustees are losing more than $151 million in savings a year for their members.

“Trustees and their advisers should demand that investment managers make changes and demonstrate value for money,” said Mark Nicoll, partner and author of the report, to the Financial Times.

According to the survey, management of pooled funds is one area where trustees often pay higher-than-expected fees, facing up to 30% higher manager fees per year. The study found management fees should be one-quarter of its current level.

LCP said it was disappointed about a lack of transparency, with nearly one-third of managers failing to disclose information to their clients. “Trustees should seek full disclosure of fees and charges for all of the pooled funds that their managers hold,” the report stated.

Additionally, LCP revealed there has not been a large increase in the total level of fees paid by UK pension funds, partly due to the tremendous growth of passive as opposed to active management by funds for equities and bond mandates. An estimated one-third of the assets of UK occupational pension funds are now managed on a passive basis.

The survey, conducted in the fourth quarter of 2009, studied 68 UK fund managers overseeing more than 80% of the UK’s occupational pension fund assets.