UK pension industry software vendor Euraplan has launched of a new foreign exchange (forex) transaction rate monitoring service for plan sponsors . The new service aims toenable pension schemes to make accurate assessments of the forex rates they are charged by their custodians or fund managers. This will allow them to decide whether or not they are receiving a good deal, says Euraplan.
Euraplan already supplies the pensions industry with software that enables pension schemes to monitor other aspects of their investments – such as income collection – and the Myners report has increased interest in transaction cost measurement.
” Our new Forex Transaction Rate Monitoring Service is a natural addition to Euraplan’s Investment Monitoring Services ,” explains Katherine Lynas, an associate director of Euraplan. “It harmonises with Euraplan’s entire professional contribution to the pensions industry as the provider of powerful and reliable tools that allow pension schemes to be their own watchdog of the financial integrity of how they are treated by their fund managers and custodians. This new service has been developed specifically in response to requests from our clients. The requests have stemmed from the increasing role global custodians are playing today in managing movement of pension schemes’ funds to and from foreign currencies.
The Myners Report made a strident call for much greater transparency on transaction costs. His reasoning is that they need to be visible to pension schemes and that this visibility will facilitate their management. Unfortunately, for most pension schemes, forex transactions are totally opaque, despite being a major cost to them. As with transactions costs incurred when buying and selling equities, it is obviously impossible for pension schemes to manage these costs if they don’t properly know about them. Our research suggests that may pension schemes are not even aware of the volume of foreign exchanges undertaken in a typical quarter on their behalf. Euraplan’s research into this subject suggests that in current market conditions, where fund performances tend to be comparatively low, the ignorance among pension schemes over forex transaction costs is a serious threat to scheme performance. Katherine Lynas gives as an example of a pension scheme with 1.3 billion in assets under management and 30% invested overseas. A scheme like this would be involved with approximately 400 million foreign exchanges every quarter. If the fund is being charged approximately one basis point on each of these transactions then it would be losing a total of 160,000 per annum. If you look at the example with the knowledge that the average commission charged on a UK security trade is 20 basis points, you can see that we are being conservative in our figures. Even so, this is a significant figure to be disregarding.
Euraplan’s launch of its powerful new investment monitoring software solution OpenAIR Investments in September 2001 has made the Forex Transaction Rate Monitoring Service possible because, unlike its predecessor Shareholder, OpenAIR Investments is a multi-currency solution. The Forex Transaction Rate Monitoring Service can be supplied to existing OpenAIR clients as a component of OpenAIR Investments and also as a separate service. It is available to both new and existing Euraplan clients.
Paul Lalwan, Chairman of Euraplan, calls the new service “an important breakthrough into an area of monitoring which has for some time been crying out for a tool that facilitates maximum vigilance. With foreign investments on the rise as pension schemes seek better performance in overseas markets; they need state-of-the-art information about whether they are getting a good deal. This is exactly what this new service provides.”