UK - Councillors running the Local Government Pension Schemes should look for the best result and not the cheapest option when considering transaction costs, delegates at the Local Government Pensions Investment Forum heard.
Frank Russell Company said that while some schemes were trying to force transaction costs down, this could be a bad idea if an investment manager was performing well.
Managing director of implementation services Adrian Jackson explained that some firms needed to incur higher transaction costs in order to deliver large outperformance.
“You don’t want to be forcing managers to reduce transaction costs if they are delivering you good performance.”
Jackson added that trustees were only required to have a full understanding of the transactions they incurred, as prescribed in the Myners Report which brought the issue to the fore.
Hermes Pensions Management chief executive officer Tony Watson agreed: “Councillors have an obligation to make sure they are getting the best bang for their buck in transaction costs.”
FSA proposals on transaction costs say the cost of acquiring any other service in a package alongside simple trade execution should not be passed through automatically by a fund manager to pension schemes.
This would mean that the fund manager would be responsible for breaking down transaction costs and explaining them to schemes so that trustees have a full understanding of the costs involved.
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