UK - Fund managers could face legal action if they breach pension fund client mandate guidelines, Hewitt Bacon & Woodrow warns.
The consultant pointed out that trustees of a £2.6bn scheme had decided not to fire a fund manager for exceeding risk parameters, for the time being. The trustees said that following an investigation, the scheme had accepted the manager’s explanation.
But Hewitt head of brand development Anthony Ashton (pictured) believes that in the wake of Unilever’s court battle with Merrill Lynch Investment Managers, fund managers’ compliance departments should be preventing mandate breaches. If not, they will expose themselves to the threat of litigation.
Ashton said: “Client mandate breaches are a cause for concern. Trustees might wish to look at the impact of any such breach and decide if they want to look for recompense.”
However, he added that most schemes were reluctant to fire fund managers, especially if they had performed strongly in the past and were likely to do so going forward.
He said: “If the manager has done well for them before and the trustees are confident it will continue to do so, they may be prepared – as in all relationships – to forgive mistakes. It is hard for people to fire somebody if they’ve done well for them.”
PricewaterhouseCoopers investment consulting practice head Peter Tompkins agreed.
He said: “It is quite expensive to change managers or advisers. So if the explanation is acceptable, you don’t want to put yourself through this, if you are happy with their performance.”
Mellon Human Resource & Investor Solutions head of investment consulting Paul Black added: “If it is a technical breach, the fund manager might be able to produce an explanation schemes would be happy with. But obviously if it was something more significant, it would be likely that you’d look to fire them.”
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