Mercer Investment Consulting has responded to the government’s consultation on the responsibility of trustees to be ‘familiar with the issues’ in the area of pension fund investment.Andrew Kirton, Head of Mercer Investment Consulting in the UK, summarised Mercer’s response:”The government’s legislative proposals will impose a significant increase in trustees’ duty of care regarding investment,” he said.”We do not believe the new standard should apply to individual trustees as a rule. This would be impractical and could jeopardise the government’s wishes to underpin the role of member representative trustees. Applying the standard to individuals would also be inconsistent with the collective approach to decision-making taken by trust bodies.”The key to meeting the standard is for trustee boards to have sufficient members and the right blend of skills collectively.”The exception to collective responsibility would be where certain individuals hold themselves out as having special knowledge or experience in investment matters. In these cases it is reasonable to require them to exercise the higher standard of care on an individual basis. This should apply equally to independent trustees.”Mr Kirton added: “It is a moot point as to whether non-professional independent trustees portray themselves as ‘experts’. Members perceive them as such and the increased responsibilities would deter inappropriately qualified individuals from promoting themselves as suitable candidates in this role.He commented: “We believe the new standard should apply on a collective basis at the level where investment decisions are taken – either the trustee board or investment sub-committee.”The proposals lend support to the formation of investment sub-committees holding a higher level of expertise than the majority of trustees, and to which much of the investment decision-making would be formally delegated. This approach would not be suitable for all schemes, however; for smaller funds in particular, the higher standard of care may well encourage the delegation of manager hire-and-fire decisions – such as to a Manager of Managers.”To a large extent, the types of investment-related decisions to which the new standard of care should apply are already covered by the Myners Code of Best Practice. Compliance with relevant aspects of the Code would be a good benchmark for trustees in assessing whether they have met the new standard, though this would not be sufficient to judge the quality of decisions taken.Trustee trainingAnne Kershaw, Worldwide Partner with Mercer Investment Consulting, and a specialist in trustee matters, commented:”All Trustees should have a minimum level of technical knowledge on an individual basis. However, some trustees will need to develop their understanding further, particularly if they sit on a decision-making investment committee.”Training is a key element for the successful implementation of the Myners Code, and there is a potential need to establish a recognised benchmark and syllabus for this. We believe the PMI has struggled to gain widespread acceptance for its Trustee Training Certificate and there is an opportunity here to reinvigorate and remodel it to become at least the benchmark for basic training,” she added.Enforcement of the standardMs Kershaw commented: “We believe that interpretation of the statutory definition of ‘familiarity’ should be left to the Courts and not to any other bodies acting in a semi-judicial capacity.”S & P Creates Hedge Fund Index
Standard & Poor’s hopes to give more investors confidence to invest in hedge funds with the launch of a new hedge fund index.S&P announced plans to create the S&P Hedge Fund Index, aimed at providing a transparent benchmark of the hedge fund asset class. Some investors shy away from hedge fund holdings because of what many see as a lack of transparency.The index will contain 40 funds divided into three sub-indices:
- Event Driven
- Equity Long/Short
- Managed Futures
- Special Situations
- Merger Arbitrage
- Fixed Income Arbitrage
- Convertible Arbitrage
- Equity Market Neutral.
- are appropriately managed
- adhere to their stated strategy or style
- maintain all necessary risk controls and operational infrastructure.
The agency that oversees Florida’s pension fund got the green light to sue the investment manager who cost the fund more than $300 million through ill-timed investments in Enron Corp. stock, the Associated Press reported.Target of the suit will be Alliance Capital Management Holdings, one of about 70 contract firms hired to invest parts of the state’s $100 billion retirement pool. Florida officials charge that Alliance made the investments even as the one-time Houston energy giant was spiraling toward bankruptcy in late 2001.The trustees of the fund, including Governor Jeb Bush, unanimously approved the lawsuit. Tom Herndon, executive director of the State Board of Administration, which invests the fund, said the suit would be filed by Wednesday.Officials from New York-based Alliance didn’t immediately return a phone call seeking comment, but the company has consistently denied wrongdoing, saying it was duped by Enron’s accounting practices like many other investors, the AP said.No retirees’ benefits were affected by the bad investment because the state has a defined benefit plan in which pensioners are guaranteed certain returns. The fund instead absorbs the loss unless it is able to recover some of the money through the lawsuit.3Plansponsor.comJP Morgan Sells US Custody Assets to Wells Fargo
Wells Fargo and Co., the fifth largest US bank holding company, has agreed to buy some institutional trust and custody businesses from larger rival J.P. Morgan Chase for an undisclosed sum, Reuters reported.Under the deal, Wells Fargo will assume custody of retirement assets and other funds generated by institutions in Dallas, Houston, and Rochester, New York. The Texas portion of the deal will transfer some $5 billion to $6 billion in assets to Wells Fargo, an executive said. “We’re very interested in growing the Texas market particularly, and we’re very committed to the middle market custody business, so this was just a nice addition to our portfolio,” Laurie Nordquist, executive vice president for Wells Fargo’s institutional trust group, told Reuters.Wells Fargo said it would charge the same money management fees as J.P. Morgan does. Nordquist said it was too early to discuss job cuts, but she indicated that Wells Fargo might not hire all of the affected staff.3Plansponsor.comBlast From the Past: S & P Says Small Cap Funds Outperform
The beat goes on for small-cap value fund investments, according to Standard & Poor’s, with a third consecutive year of strong showings.Through April, small-cap value funds gained a whopping 9.56%, which allowed the asset class to keep its honor as the leading domestic equity fund category. In fact, S&P said, every other domestic equity fund category except for mid-cap value and small-cap blend funds is in negative territory for the year.According to S&P, the average domestic stock fund is off 3.88% through April compared to the S&P 500 Index, which dropped 5.88% during the period.Worst performers among domestic equity fund categories are those relying on a growth style. The large-cap growth, small-cap growth, and mid-cap growth fund styles have respectively returned -8.50%, -5.53%, and -4.87%, through the end of April, S&P reported. Through April, mid-cap value funds averaged a 3.84% return while mid-cap blend funds turned in an average -1.21% in the same period. The market can expect that small- and mid-cap value stocks will continue to outperform other sectors in coming months, S&P said, because investors consider many growth issues to be too pricey.3Plansponsor.comDo Gooders Report on Good Done
Advocates of socially responsible investing (SRI) have a new place to gain an international view of major developments in the trend.SRI World Group has released its Leading Social Investment Indicators Report, which examines major developments during 2001 involving:
- socially screened mutual funds
- corporate governance efforts
- shareowner advocacy
- community investing
- corporate social research
- academic research.