News & Views

This article was published in Professional Pensions | May 12, 2023 By Donny Hay

Since December 2019, the Competition and Markets Authority (CMA) has required trustees of DB schemes to set strategic investment objectives for their investment advisers, whether those advisers are investment consultants or fiduciary managers. In the summer of 2022, The Pensions Regulator (TPR) took over from the CMA in overseeing and guiding trustees.

More than three years on from the CMA order, most trustees are still merely tweaking the investment objectives proposed by their advisers. This means that investment advisers are reporting against objectives they have largely designed themselves. In effect, they are setting and marking their own homework.

The main danger from this conflict of interest is that investment advisers will set themselves low bars – unchallenging objectives that they can easily meet. This obscures the quality of the adviser’s service and makes it harder for trustees to get a true impression of how well their investments have performed. The net result is likely to be sub-optimal service for DB schemes and their members.

For charts and the rest of the article please visit the hyperlink here.

This article was published in Pensions Expert | January 6, 2023 By Roger Brown

In times of crisis, pension funds’ investment strategies are put to the test – and 2022 has hardly been short of crises.

Resurgent inflation, rising interest rates ,and Russia’s invasion of Ukraine had already led to dramatic volatility in bond and equity markets, before an abrupt shift in UK fiscal policy caught investors by surprise and made matters worse.

On September 23, the Truss government’s “mini” Budget promised a programme of sweeping tax cuts unbalanced by any reductions in spending. Gilt yields surged in response, with immediate consequences for many defined benefit pension schemes.

Over the past two decades, DB schemes have widely adopted liability-driven investment to sustain and improve their funding levels.

Many LDI products hedge against the prospect of falling gilt yields, which increase schemes’ liabilities, and most employ leverage to boost exposure to gilts as matching assets.

For the rest of the article please visit the hyperlink here.

This article was published in MandateWire| September 26, 2022 by Rachel So

A growing number of large UK pension schemes are choosing fiduciary or outsourced investment managers to handle their assets as they move towards their endgame with a focus on derisking.

As previously reported by MandateWire Analysis, data from MandateWire reveal that UK pension funds awarded 17 fiduciary management/multi-manager mandates worth a combined £24.9bn last year.

This was a notable rise on the 10 mandates worth a total of £5.2bn awarded in 2020, when the start of the Covid-19 pandemic disrupted fiduciary manager hires.

Trustees have been legally required to run a competitive tender process for fiduciary management services since December 2019. The Pensions Regulator recently published updated guidance on tendering for fiduciary managers as it prepares to take over regulation of trustee duties from the Competition and Markets Authority

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This article was published in Pensions Expert | July 29, 2022

Gowling WLG and IC Select specialists recap the legal fundamentals affecting trustees’ investment practices, before considering the importance of setting strategic investment objectives in order to comply with CMA and DWP rules.

The Department for Work and Pensions in June published its delayed response to the July 2019 consultation on the Competition and Markets Authority’s recommendations for trustee oversight of investment consultants and fiduciary managers.

Draft legislation was included, which, once brought into law in October, will add further force to what most, if not all, occupational pension scheme trustees should have been doing since December 2019 to comply with the CMA’s market investigation order.

For charts and the rest of the article please visit the hyperlink here.

The authors were Laura Charles and Kevin Gude who are legal directors at Gowling WLG; and Donny Hay, a director and Peter Dorward the managing at IC Select. 

This article was published in Pensions Expert | September 21, 2022 By Benjamin Mercer

Although the UK fiduciary management market has risen by 11 per cent a year over the past five years, its growth is still below the previous period’s figures, with Covid-19 having an impact on selection processes in 2021, according to a survey by IC Select.

The fiduciary market grew 73 per cent by number of clients and 71 per cent for assets under management over the past five years, producing the 11 per cent annualised growth rate.

IC Select’s survey, which polled 14 fiduciary managers leading up to December 2021, showed that these figures represent a marked slowdown on pre-2016 levels, when the number of funds grew by 27 per cent a year.

The report, published on September 21, also showed that few schemes are commissioning independent oversight, despite attempts by the Pensions Regulator to encourage greater take-up.

For charts and the rest of the article please visit the hyperlink here.

This article was published in Mallowstreet | September 26, 2022 By Sandra Wolf

The UK fiduciary management market has grown substantially both in number of funds and assets under management in the past five years, a new survey has found, but few schemes use independent oversight
As well as the market expanding by just over 70%, there has also been a 120% increase in the size of funds converting to fiduciary management, according to the latest Fiduciary Management Survey by FM oversight specialists IC Select.
IC Select’s head of research, Anne-Marie Gillon, said the Covid pandemic initially caused a slowdown in the number of schemes converting to fiduciary management. However, “it would appear that its longer-term impact has been to cause a number of schemes to reassess their investment governance approach so as to be better prepared and nimbler for future problems”, she said. This trend has been particularly noticeable at some larger schemes, Gillon added.

For charts and the rest of the article please visit the hyperlink here.

Fiduciary managers take a variety of approaches to managing a portfolio transition, and with varying degrees of skill. Some have dedicated in-house management teams which, as well as working with existing clients, provide services to third parties. These managers tend to be the best equipped to effectively handle a highly-sophisticated transition, including dealing with the risks of being out of the market.

Some use non-specialist teams, while others outsource the process. Others take a flexible approach, using third parties when needed, or when the client requests it.

Picking the right approach will depend on the complexity of a scheme, but in making their decision trustees should consider how a fiduciary manager can effectively keep costs down and manage market exposure throughout the transition.

Simpler schemes, such as those with fund-based investment strategies, might not need the expertise of a specialist transition team, but they should still assess their managers to ensure they have the appropriate controls and efficiencies in place. As schemes become more complex, trustees should consider whether a specialised approach needs to be adopted.

But no matter how simple or complex a scheme is, trustees must be provided with transparent transition plans, reporting, and pre- and post-trade cost analysis so they are aware of exactly what is taking place, and what costs are being incurred.

Trustees who ignore the transition capabilities of a fiduciary manager at the time of the appointment, do so at their peril.

It’s one of the biggest decisions a board of pension trustees can make: to part ways with the fiduciary manager and bring in one of the competitors as a replacement.

For a large and complex scheme, a switch can raise numerous concerns, including how to effectively transition the investment portfolio from one manager to the other without jeopardising any market positions.

At IC Select, we think that when it comes to portfolio transition, it would be wise for trustees to consider a fiduciary manager’s capabilities at the time of the initial appointment.

Pension trustees should be continuously running the slide rule over their investment consultant or fiduciary manager. It’s the best way to ensure that their adviser remains the right one and is delivering value for money. This oversight should also extend to the investment portfolio, which after all accounts for 80% of the total costs of pension scheme ownership. 

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This article was published in Professional Pensions| 22 June, 2022

You wouldn’t expect to buy a new car without first taking it for a test drive. Likewise, any car owner knows that they’ll get the best from their vehicle if they service it regularly and keep it in a state of good repair. Given the complexity of modern engines, for most of us that means bringing in the mechanic.

Each of these arguments holds equally true for defined benefit pension schemes, trustees and their investment advisers, whether they be consultants or fiduciary managers. For the avoidance of doubt, in this analogy trustees own the car, and they need to be sure that they are sitting in the driver’s seat and not at the side as a passenger.

It’s also the case that there is an element of negotiation between trustees and a newly appointed manager. We estimate that this often results in costs coming down by about 0.03%. 

Crucially, however, by focusing on explicit costs, trustees are failing to pick up the significant differences in dealing efficiencies that can exist between managers. 

We at IC Select calculate that using an efficient manager – one that utilises market awareness, technology and techniques such as crossing and aggregation to reduce dealing fees – can save a scheme around 22 basis points, or 0.22%, a year in execution costs. By not homing in on dealing efficiency, trustees risk losing far more than they might save by negotiating explicit fees down.  

This leaking of value mounts up: for a pension scheme with £250 million of assets under management, using a manager that deals inefficiently could lead to up to £2.75 million in lost value over five years. That is a significant amount. 

We think that all fiduciary managers should seek to measure the efficiency of their execution, and frankly, we find it extraordinary that they don’t. If trustees don’t ask questions of their fiduciary managers about the efficiency of their dealing costs, they will continue to pay the price of a manager’s indifference. 

In our previous commentary, we highlighted how important it is for trustees to ensure they receive the right information about their fiduciary manager’s execution costs. By this we mean not just the basic quantum of the charges they pay for executing securities transactions, but also the efficiency of the way they do it. 

We think this issue is so important that it’s worth going into more detail, so we’ve decided to write a follow-up.

When pension trustees set about the process of selecting a fiduciary manager, they – rightly – put significant emphasis on cost. Typically, this means they focus on the explicit fees being charged by the fiduciary fund manager and, if it uses a third party manager, the charges that these managers levy for execution. 

Of course, transaction fees will vary depending on the securities bought and sold, and how actively managed the portfolio is. If trustees want to bring these costs down, they can do so by simplifying their asset allocation, although this can risk skewing returns or mismatching assets and liabilities. 

The main finding of the CMA’s review was, in essence, that trustees were not challenging the advice they were being given by their investment advisers enough. In our view, in the wake of the CMA’s ruling, too many trustees simply let their consultant or manager take the lead in setting their strategic investment objectives, tweaking them at best, but all too often cede the monitoring and assessment process to that very same adviser.

In fairness, the nature of the relationship – mainly lay trustees negotiating with seasoned investment professionals – doesn’t make challenge easy. But there are, nevertheless, ways that trustee boards can assert more control over proceedings and put in place a set of concrete measurement tools that can help to arrest investment underperformance.

As spelled out by The Pensions Regulator (TPR), trustees retain ultimate accountability for their scheme’s investments – so it is imperative that they get involved.  

A balanced scorecard approach

We advocate – as does TPR – the use of a balanced scorecard approach in setting scheme investment objectives. This means that the trustees’ priorities, for performance, investment advice, the prominence of environmental, social and governance issues, and expectations for reporting and disclosure, are clearly identified and communicated to the investment adviser.

Each of the components should be weighted and scored and, if necessary, synthesised into a single overall score. The structure should be a dynamic one, where softer objectives, such as ‘clear and concise reporting’, can be set alongside harder targets, for instance ‘achieve a return of gilts plus x%’.

Crucially, all of the objectives should be realisable, actionable and measurable. This way, trustees have a set of quantifiable benchmarks that they can return to and assess with clarity and confidence.

Setting objectives, however, is just the first step. Trustees should regularly revisit their scorecards and evaluate their adviser’s performance, including sending them questionnaires and commissioning independent analysis if required.

If market conditions change or trustee priorities shift, then there’s no reason why the scheme’s objectives cannot be modified and the scorecard changed to reflect it.

By adopting this approach, trustees should be able to set the best strategic investment objectives for their advisers and have an effective way of holding them to account.

Donny Hay is a director at IC Select

This article was published in Professional Pensions| 17 May, 2022

In the world of defined benefit pensions, just like anywhere else, pursuing improvement is a continuous process.

Boards of pension trustees will have long ago set out strategic investment objectives for their investment consultant or fiduciary manager, after the Competition and Markets Authority (CMA) made the process mandatory in December 2019.

But how many of them will have revisited and adjusted those objectives, and how many will have independently assessed how well their investment adviser has lived up to them? For us at IC Select, needless investment underperformance has been the enemy of pension schemes for too long. We believed that the CMA’s decision was a potential game changer. In truth, while the rules have changed, too much of the game remains the same.

To be clear, these templates are useful and provide a clear statement of costs. However, they still fail to show how efficient the execution was – costs will rise and fall based on how the scheme’s assets have been allocated (equities, bonds, hedge funds, private equity, say) and its particular investment style (active, passive, growth or value). 

It’s important to be properly informed about the cost-efficiency of a fiduciary manager’s execution processes. At IC Select, we estimate that efficient execution – where transactions are handled in a way that limits unnecessary charges – could save the average fund 22 basis points a year in costs. That’s 0.22% of the scheme’s total assets under management: a considerable annual saving. 

However, until all managers measure or benchmark the efficiency of their execution, many trustees will remain in the dark about whether all achievable savings have been made. 


Your fiduciary manager will happily tell you how much it costs to execute trades on behalf of your scheme’s investment portfolio. But that doesn’t necessarily mean that you, as a pension trustee, are getting the full picture about whether those trades are being carried out efficiently. 

While it’s easy for trustees to feel overwhelmed by the amount of information their manager provides them with, it’s the quality, not the quantity, that counts. Getting the right detail – whether the trades were aggregated or crossed with others to cut costs, for example – can save a scheme money and so lead to benefits for members. 

Of course, not all fiduciary managers execute transactions in the same way. Those that handle the trading process themselves can and do measure and report the efficiency of their performance; they know exactly how they execute securities deals. 

When a manager uses a third party, it will assess and monitor that third party’s handling of the execution, but in practice it is unlikely that the fiduciary manager will scrutinise its efficiency in terms of costs.

Whatever their approach, all fiduciary managers will report on execution costs, using templates set up by the Cost Transparency Initiative, the independent body backed by the Pensions and Lifetime Savings Association, Investment Association and Local Government Pension Scheme Advisory Board.

Is its model scalable in a way that means it can not only maintain, but also improve, customer service and the fund’s performance as it grows? 

Not all fiduciary managers have strategic partnerships with custodians or asset-service providers. And, of those that do, not all of them manage to collaborate in a way that benefits the client. For some, the relationship is a purely functional one. 

For us, that’s a missed opportunity. In our view, trustees should understand the appetite that their existing or prospective fiduciary manager has for collaborating with others, irrespective of whether they have formal partnerships or not. 

That collaboration can take many forms: it could be co-operating with third parties on technology, the benchmarking of service provision, or centred on environmental, social and governance (ESG) issues. When it works, it will almost certainly improve the service that is provided to scheme trustees and, therefore, their members.  

Those fiduciary managers that fail to develop effective strategic partnerships may find themselves struggling to scale up their businesses and keep pace with market innovations. And that makes it more likely that the service they provide to their clients ends up falling short. 

 IC Select Strategic Partnerships


Collaborative efforts can sometimes yield the best results. A significant number of fiduciary managers have forged strategic partnerships with the custodians of their clients’ scheme assets or the providers of services around them.

Managed well, these relationships can bring tangible benefits to pension trustees – cutting costs, reducing operational risks, and providing opportunities to foster innovation. In a rapidly changing world, strategic partnerships can also help fiduciary managers scale up their businesses, further enhancing the services they can offer to schemes. 

As pension schemes and the issues they face become more complex, we at IC Select believe that trustees should consider how well placed their fiduciary manager is in this area. Does it have what it takes to adapt and innovate in response to changing client needs and developments in markets and regulation?