US - Excessively high foreign exchange trading fees could be costing investors up to 2% of their total portfolio over a 40-year period, new research by Russell Investments showed.
In a research report titled, Are your FX fees too high, Russell found the midpoint between bid and offer prices of each FX transaction was about 9 basis points, up to nine times higher than the average cost for the most traded developed market currencies of 1-3 basis points.
Russell analysed 40,000 trades between January 2008 and December 2009 on assets totalling US$19bn.
Officials at the firm said investors do not pay sufficient attention to the execution of their trades.
Russell head of commission management and currency implementation Ian Toner said: "There is no one for which this is issue number one."
There are generally three ways investment managers execute foreign exchange trades: via an internal trading desk that works with various counterparties, trading with one or two preferred counterparties, or outsourcing the trades to the investors' custodian bank.
"While the first and second approaches detailed above should result in sufficient FX execution, the third approach has more room for slippage in this area," the report said.
Investec Asset Management head of currency management Thanos Papasavvas said he regularly receives questions about available liquidity and bid-offer spreads from consultants and trustees during finals presentations.
He added: "I would like to hope that a cross-section of their survey relating specifically to currency managers should show much tighter spreads on average when compared to the overall investment management industry. This is due to the former looking to generate alpha from the underlying trades whereas more generalist managers may not have the expertise of a dedicated FX trading desk to build on the relationships and ensure liquidity, transparency and tight spreads."
The costs of trading have remained unchanged since Russell's previous report in 2004.
Toner said he would have expected to see greater efficiencies in the market considering technology has improved since then. "We don't see that," he said.
Currency trade execution came into the spotlight recently when State Street was accused of allegedly mispricing foreign currency trades it had executed for the California Public Employees' Retirement System and the California State Teachers' Retirement System. (Global Pensions; October 20, 2009)
Mark Evans has been appointed as a director at Independent Trustee Services (ITS) to lead trustee appointments in London.
The Pension Protection Fund (PPF) is consulting on changes to the actuarial assumptions it uses in valuations in a bid to better reflect the bulk annuity market, with schemes set to move into surplus on aggregate.
Private sector defined benefit (DB) schemes were 96.3% funded on a Pension Protection Fund (PPF) compensation basis at the end of July, according to the lifeboat fund's monthly index.
Conduent has completed the sale of its actuarial and human resource consulting business to private equity investor, H.I.G. Capital.