Mercer Investment Consulting has submitted its response to the Government on the proposed revisions to the Myners Principles for institutional investment decision-making.
“We were surprised at the content and tone of the Government Review. The Government asserts that trustees have not attained the necessary levels of skill, expertise and resourcing and as such are the weakest link in the decision-making chain. This is a sweeping and unjustified position, and appears to contradict the Review’s pension fund self-assessment survey which suggested that substantial progress has been made in implementing the Myners Principles,” said Andrew Kirton, UK Head of Mercer Investment Consulting and author of the response, made the following comments.
“We agree with the Government’s desire to ensure trustees are supported in their investment decision-making responsibilities.” But, he added: “We are concerned, however, that prescription is becoming the Government’s guiding principle rather than “letting the market decide”. For example, the emphasis on in-house support does not acknowledge that the division of resources between trustees, their investment committee members, in-house staff and external advisers will, and should, differ between schemes depending on needs and circumstances.”
He added: “In a number of areas the costs to schemes of the proposed revisions have been grossly underestimated. There is no recognition, for example, of how difficult it is to find investment experts willing to take on in-house roles, at least at the costs outlined. The assumption that the additional resource would cost schemes around £40,000 a year is wholly unrealistic.”
Regarding the separate tendering of strategic asset allocation and fund manager selection advice, Kirton said: “The Government’s treatment of external experts suggests a desire to weaken the market by burdening it with artificial distinctions and raised costs.”
“Seeking to impose a rigid separation between giving advice on asset allocation and manager selection, for example, could be positively damaging given the intimate, inter-linked relationship between these two activities. Many important asset strategy-related issues, such as determining the forms of investment risk to take on and the scope of investment mandates, are settled only with the knowledge of investment products and managers. The separation of these decision-making activities is artificial. Such inflexibility will stifle innovation.”
“While the benefits to the industry may be unclear, the costs of compartmentalising advisers and increasing the number needed will be very real. Again, however, the Government grossly under-estimates such costs,” he said.
On regular reporting, Kirton added: “While measuring fund manager performance is relatively easy, assessing trustee decision-making and the advice they are given is less straight-forward. The ultimate test is whether funds meet all their obligations to members.”
However, he supported the assessment of trustee and advisor performance in principle: “We believe it is possible, both quantitatively and qualitatively, to assess the decisions made by trustees and the advice they are given and that it is important to do so. Many trustees now have formal processes for conducting such assessments and the range of analytical tools available to assist them is growing.”