UK - There are shortfalls to trade measurement services, delegates at the National Association of Pension Funds (NAPF) investment conference will be told today as a disclosure code for pension funds is launched which has been drawn up by the NAPF and the Investment Management Association (IMA).
Adrian Jackson, director of transaction services at Frank Russell, will say that trade measurement services take a quantitative view of a qualitative world and that there are many factors involved in the trading process. He will say that transaction services have no correlation with a portfolio’s performance and communication is key between managers, traders and funds.
Jackson asks: “Would you fire a ‘good’ performing manager who had high commissions and ‘poor’ trading?”
In the first keynote presentation of the Edinburgh conference, Jackson will say that transaction services do not take into account a manager’s objective and that concentrating on reducing transaction costs may lead to an incorrect trading strategy.
In his review of institutional investment former Gartmore boss Paul Myners suggested 10 questions for trustees to ask their fund managers about the costs they incur during trading.
Jackson concludes that the answers trustees receive to those 10 questions, and possibly others, will determine the correct strategy to pursue as part of ‘overall performance attribution’. According to Jackson: ”It’s more than just buying a trade measurement service followed by manager bashing.”
Jackson has also observed that manager transitions and foreign exchange dealings are two areas where lack of attention by trustees seems to lead to high costs.
In the same keynote presentation, Lindsay Tomlinson, chairman of the IMA will announce the disclosure code that the IMA has created in conjunction with the NAPF, using the 10 questions drawn up by Paul Myners.
Tomlinson said the code operates on two levels:
* Level one covers investment managers’ philosophies, policies and processes relating to fund management costs, such as: dealing venues and methods; broker selection and transaction allocation; commissions, spreads, market impact and opportunity costs; policy on soft commission; research services and IPO access; custodial services, deposit placement and foreign exchange.
These policies should be disclosed annually.
* Level two relates to client specific data on the actual costs involved, such as: fund management fees; custody costs; transaction volumes / commissions paid; soft commission proportion; taxes; bank charges.
These policies should be disclosed half-yearly.
A London Business School report has revealed that a typical £200m equity portfolio incurs annual fees of 129 basis points.
The code has been issued today for consultation.
Commenting, Ken Ayers, NAPF investment council vice chairman, and chairman for the working group developing the code, said:
“The new disclosure code will give pension fund trustees access to a better, more transparent breakdown of exactly what they are getting for their money.
“It will help focus the minds of both trustees and fund managers on ensuring value for money for millions of pension scheme members.”
Ayers added: “Once the code is in place, pension schemes will be monitoring their investment managers’ compliance with it.”
He also said that if the code is adopted by IMA members it is hopedgeneric compliance can be achieved by the end of this year and fullcompliance by mid- to end-2003. There will be no partial compliance, he added.
According to Ayers,
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