The Local Government Pension Scheme Advisory Board (SAB) has launched a transparency code to help schemes get a better handle on their costs and fees.
The code, which is voluntary for asset managers to sign up to, has been created to help local government pension scheme (LGPS) funds obtain the necessary data in order to report costs transparently. It comes after funds encountered difficulties in getting such data from asset managers.
The project, which gathered momentum over the past year, is expected to set a gold standard in cost transparency not just for the scheme but across the whole industry.
The template which underpins the code is the result of collaboration between Dr Chris Sier who has long campaigned for cost transparency, the West Midlands Pension Fund (WMPF), and the asset management trade body - the Investment Association (IA).
It will show costs in pounds and pence, and is based on the model used in the Netherlands.
Getting the different parties to agree on the template is a huge achievement and is a big step in clearing the path towards transparency.
Speaking yesterday at the Pensions and Lifetime Savings Association's LGPS conference, SAB chairman Roger Phillips said the code is about transparency, and "not about pricing league tables". This comes after concerns from both sides that the data would be used for benchmarking, which will not be the case.
The WMPF found that 25% of returns are taken up by investment costs, according to its chief investment officer Jason Fletcher, who said "we need the data so we can manage our costs better".
The code's template stems from a proposal set out in a paper written by Sier in 2015 for the Financial Services Consumer Panel, based on the Dutch cost disclosure model.
Also speaking at the conference, Sier - who is professor of practice at Newcastle University Business School - praised the collaborative work: "This is the first time ever I've seen two sides of the fence - both the procurers and providers of investment management - saying ‘we agree this is a good idea'."
He added the £217bn scheme now has a "massive opportunity" to do something for the whole marketplace. "What you adopt, the chances are it will be adopted market-wide," he told the LGPS delegates.
Meanwhile, IA public policy adviser Imran Razvi said: "As an industry we want to see better and standardised reporting of costs, and we're in favour of transparency." He added there is a "real opportunity" here for investment management firms to demonstrate their value-add.
Asset managers will be able to sign up to the code from this month, to demonstrate their commitment to transparent reporting of costs. Those that do sign up will be listed on the SAB's website and will be able to use the logo on marketing literature.
The conditions are agreeing to supply information in the format requested and in a timely manner, and agreeing to the data being checked by an independent, external third-party.
The template lists a series of broad headings for reporting costs and expenses. In its initial form it will concentrate on areas that should already be available but may not have been supplied by managers either proactively or in a format easily useable by the funds.
Phillips said the template will develop over time to cover more challenging areas of transparency. A similar template will be developed to cover alternative asset classes such as private equity. While the code is only voluntary for managers, he is hopeful it will catch on.
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