Mercer Says UK 'Duty of Care' on Trustees Too Onerous

Big Companies Choosing Hybrid Pension Plans, Says Watson Wyatt The shift to so called hybrid pension plans by larger employers appears to be slowing and perhaps responding to different motivations, according to new analysis from Watson Wyatt Worldwide.A third of

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Big Companies Choosing Hybrid Pension Plans, Says Watson Wyatt
The shift to so-called hybrid pension plans by larger employers appears to be slowing – and perhaps responding to different motivations, according to new analysis from Watson Wyatt Worldwide.A third of the companies in the Fortune 100 offer employees hybrid pension plans, a slight increase from 32% of the same group in 2000. In 1985 just one of the Fortune 100 firms offered a hybrid plan. Shifting Priorities?On the other hand, half now offer workers a traditional defined benefit pension plan, also down slightly from 52 over the same two-year period, according to the analysis. While most of those firms also offer a 401(k), the number of Fortune 100 firms offering just a 401(k) plan now totals 17, up from 10 in 1998. ‘As the conversion to hybrid pensions has drawn attention from Congress over the past two years, the price tag for these conversions has escalated,” according to Eric Lofgren, director of the benefits consulting group at Watson Wyatt. ‘The companies that have recently adopted hybrid plan designs are mainly those that want to facilitate a cultural change or for whom a traditional career-long employment model is simply no longer realistic — not companies looking to generate cost savings.”Lofgren notes that some employers may be holding off on plan conversions as they await further clarification of the legal status of hybrid plans in the wake of recent litigation.3Plansponsor.comLSE To Probe Savings Industry in Europe
Researchers at the prestigious London School of Economics (LSE) will kick off a five-year research project into the state of savings rates and pension programs across Europe. UBS Global Asset Management is funding the effort.According to a report on the IPE newswire, the project will examine the problems of an aging population and effective retirement schemes – considering the impact of government money, employer involvement, and the worker’s own savings.In particular, LSE and UBS say the study will focus on three pension themes:
  • pension fund management including the differences in structure and challenges facing both defined benefit and defined contribution plans as well as performance and risk measurement,
  • household savings trends including the different forms of savings programs across Europe, and
  • public and legal pension policies
LSE said the UBS-funded project would allow it to help build existing research into pension finance schemes and retirement policy for both the public and private sectors.LSE professors Tim Besley and David Webb will head the research team, which is scheduled to begin work May 15.3Plansponsor.comNirvana Nears as Fidelity Offers Investors Consolidated Reporting
Participants in retirement plans at Fidelity Investments may soon be able to monitor all of their investments from one Web site – regardless of the mutual fund, brokerage, or bank in which the money is deposited.Fidelity officials said they planned to offer the Full View feature – gathering data about all of a participant’s accounts – to plan sponsors starting in May, and for it to be widely available to workplace investors later this year.If the employer opts for the new plan option, Fidelity said in a press release, participants would be able to consolidate online data from more than 2,100 financial institutions.Automatic Account UpdatesFidelity said the Full View feature automatically updates financial data, which the investment company said would allow participants a better chance of implementing investment strategies that took into account their entire financial picture.According to the press release, Fidelity participants used to have to manually type in other account data into Fidelity PortfolioPlanner, the company’s financial planning tool, and then update the data each time they reviewed their plan’s progress.Fidelity Investments has assets in custody of $1.5 trillion, including managed assets of $887 billion. It offers investment management, retirement, brokerage and shareholder services to 16 million individuals and institutions, as well as through 5,500 financial intermediaries.3Plansponsor.comWM Says Only One in a Thousand Mutual Funds Up Last Year
A new study of UK mutual fund performance shows how badly they were hammered during 2001, with only one out of 1,000 funds turning in a positive return.Overall, according to the survey by WM, it was the poorest fund showing in a decade with an 8.9% drop, a report from IPE newswire said. Nine out of ten funds, which collectively had 423 billion in assets, ended in the minus column with showings of -5% to -14.3%, according to WM.The year also saw a flight from equities. The average fund followed by WM allocated 71% to equities at the beginning of 2001 – 48% to UK issues and 23% overseas. During the year, funds pulled out 3.5 billion, which brought down the overall equity average to 46%.WM said that was the lowest it has been since the mid-1980s. Monetary assets and index-linked assets now represent almost 20% of the average fund’s portfolio – more than double that of 10 years ago, WM said. WM’s figures also show a considerable rise in allocations to overseas equities with an additional 12 billion committed during 2001. Even after falling markets are taken into consideration, the allocation of 25% is the highest level recorded in the WM universe. American and Japan were the two greatest beneficiaries of this influx of cash.3Plansponsor.comHedge Fund Non-Correlation Exaggerated Says Study
Hedge funds may not really offer the diversification advantages generally touted for the asset class, according to a new study.In fact, while hedge fund managers frequently point to a low correlation with traditional investments like stocks, a joint academic study just published in the Journal of Alternative Investment says that hedge funds have a stronger correlation than widely believed – and one that is, in fact, higher for most hedge fund strategies when markets fall. The report was prepared by Laurent Favre, a research analyst at Swiss bank UBS AG, and Jose-Antonio Galeano of the Swiss Banque Cantonale Vaudoise. The paper studied returns of hedge funds and traditional asset classes via a benchmark index for a typical Swiss institutional investor from January 1990 to June 1999, according to Reuters. Fall Further?Worse, the authors of the study say that certain strategies- such as equity non-hedge, event-driven and merger arbitrage are dangerously exposed when markets fall sharply, which can cause those investments to fall even more than the overall market. That risk was high for equity non-hedge strategies that are predominantly long on equities and event-driven strategies that include distressed funds that bet on bankruptcies, according to the study.Its authors argued that most hedge funds not only fail to provide the diversification benefits as advertised, but that investors also face a much greater risk of catastrophic loss in some hedge strategies than in other traditional investments. In fact, the paper said four out of the 11 hedge fund strategies it studied were more exposed in a market downturn – but offered no upside potential compared to traditional markets in an upturn.Except for global macro, market neutral, short-selling and CTA which invests in commodity and financial futures, the study said almost all other hedge fund strategies carried a risk of producing ‘extreme’ results.3Plansponsor.comNorthern Trust Hires Transition Manager From CSAM
Northern Trust Global Investments has tapped Angela Figg as Head of Transition Trading.The Transition Services Group provides services related to the restructuring of portfolios for investors, including plan sponsors, when there is a change in investment managers or asset allocation strategy.Transition TrackingThere are two main components to execution costs – commissions and market impact. There is also a cost to the time component of executing a trade, which also can be measured. While plan sponsors generally have been aware of commission costs, but traditionally market impact was difficult to measure – despite the fact that it tends to dwarf commission costs. Institutional commission rates very widely, but rarely exceed seven cents a share.Figg was previously vice president, trading, for Credit Suisse Asset Management in New York, where she was the sole program trader for $5.5 billion of structured equity and select economic value products, as well as convertible bonds, according to Northern Trust.Prior to that she was senior vice president, head of trading, for Investment Research Company. Figg began her career with Harris Investment Management in Chicago as senior equity trader for the $6 billion Harris Insight Funds portfolios.She has an MBA from the University of Chicago and a BA from Michigan State University.3Plansponsor.comUS HedgeFunds Marginally Up in April
The Average US Hedge Fund gained an estimated 0.6% net in April, according to Van Hedge Fund Advisors International, based on initial performance reports. The Average U.S. Hedge Fund is up 2.0% for the year to date, according to the firm.3Plansponsor.comWorldCom May Infect Entire Corporate Bond Market
WorldCom has so much outstanding debt – $28 billion at the end of Q1 – that corporate bond market watchers say the declining credit rating could have much wider implications than Enron’s collapse, according to Reuters. WorldCom looks like it could lose its investment-grade rating – and that could require fund managers and insurance companies to sell those holdings – or other high-yield offerings in their portfolio to meet rules that limit the amount of junk credit they can own. The bonds are down 50% in value, and WorldCom stock has lost 90% of its value since January 1, according to the WSJ.3Plansponsor.comFixed Income Funds Up In April Says Lipper
Benefiting from conflicting economic data and the equity market’s struggle to find footing, US bond mutual funds, with combined assets of $2.47 trillion, gained a little ground in April, according to figures from Lipper, Inc.The average taxable US bond fund inched up by 1.1% over the month, bringing year-to-date returns to 1.4%, while equity funds, depressed by a poor outlook for corporate profits, slid a further 3.7% in April, bringing the year-to-date tally to a disappointing -3.3%. Investors also found cash unappealing over the month, and, amid growing consensus that the US central bank is unlikely to start tightening the money supply any time soon, showed a clear preference for fixed income bets.According to data from Lipper, over the month:
  • general US Treasury funds gained 2.9%
  • US government funds gained 2.2%
  • target-maturity funds were up 4.2%
  • high-yield funds edged up by 1.1%
  • emerging markets debt funds were up by 1.1%.
3Plansponsor.comNew Fixed Income Products from ProFunds
ProFund Advisors has launched four new funds – two benchmarked to the US long bond and two equity, short funds.According to a press announcement from ProFund, the bond funds are:
  • Rising Rates Opportunity ProFund, which is designed to benefit from rising interest rates, and
  • US Government Plus ProFund, which is designed to benefit from falling interest rates
ProFunds’ short equity offerings are designed to profit when their benchmarks fall, and, according to the company, provide an opportunity for investors to earn a profit in a falling equity market or to hedge against market declines.These funds are unleveraged, seeking the inverse of the daily performance, before fees and expenses, of the most recently issued 30-year US Treasury Bond.The new short funds include:
  • Short Small-Cap ProFund, benched to the Russell 2000 Index, and
  • Short OTC ProFund, benched to the Nasdaq-100 Index.
In a separate development, the $17.2 billion Fidelity Low-Priced Stock fund also said it will close to new investors amid record inflows for the small-cap value category. The fund is up 31% over the past 12 months, according to Dow Jones.3Plansponsor.comSEI Improves Managed Accounts Offering
SEI Investments (NASDAQ: SEIC) has made changes to its Managed Accounts programme. They include lowering the investment minimum for seven managers in its managed accounts range, adding a small capitalization value manager and expanding advisor access to Managed Account managers. In response to feedback from IFAs and their clients, SEI has lowered the minimum managed account investment to $100,000 for seven out of its thirteen managers, including Equinox Capital Management, LLC, Transamerica Investment Management, LLC, Goldman Sachs & Co., McKinley Capital Management, Inc., McDonnell Investment Management, LLC, Lazard Asset Management and Dresdner RCM Global Investors. Parametric Portfolio Associated, another of SEI’s Managed Accounts Program managers, has lowered its investment minimum to $200,000. SEI also added Sterling Capital Management to the Managed Accounts program, giving advisors and their clients another alternative in the small cap value arena. Sterling Capital has a $100,000 investment minimum. “By lowering our account minimums, advisors can now offer the managed accounts solution to a broader universe of clients and have access to the country’s leading managed account money managers, via SEI’s specialized manager-of-managers approach,” said Scott W. Dell’Orfano, Senior Vice President, SEI Investments. “Right now, individually managed accounts are among the fastest growing solutions in the asset management industry because investors are looking for an enhanced level of service with reference to portfolio customization, personalized tax management and securities ownership.” “SEI’s customized managed accounts solution enables me to develop and monitor portfolios for my clients,” said Scott Mason, Managing Director, Rubicon Asset Management. “By outsourcing the manager selection, monitoring of the managers, account rebalancing and ongoing tax management, SEI’s program enables me to provide a value added service. With the lowering of minimums, I can now offer this solution to more of my clients, which in turn helps me strengthen my client relationships.” The managers in SEI’s Managed Accounts Program and their investment minimums include:
  • $100,000 – Equinox Capital Management, LLC, Transamerica Investment Management, LLC, Goldman Sachs & Co., McKinley Capital Management, Inc., McDonnell Investment Management, LLC, Lazard Asset Management, Dresdner/RCM Global Investors, Sterling Capital Management, LLC
  • $200,000 – Parametric Portfolio Associated
  • $250,000 – Osprey Partners Investment Management, LLC, David J. Greene and Company, LLC, McDonnell Investment Management, LLC
  • $1M – Standish Mellon Asset Management
  • $5M – LSV Asset Management, Alliance Capital Management, L.P.Mercer Says UK “Duty of Care” on Trustees Too Onerous
    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.”