The asset management industry has always had a problem with transparency, but is the tide finally turning? Chris Panteli looks through the evidence.
“I was with some trustees the other day who openly said to me they don’t read the stuff they sign. They hope the investment consultants have got their backs covered, but if you then challenge the investment consultant, no, they are not responsible for the contract the trustees sign up to.”
Andy Agathangelou, Transparency Task Force
Transparency – or a lack thereof – has longbeen a problem for the asset management world. Extensive research carried out by various organisations has shown that the general public view the industry as opaque and untrustworthy.
The slow drip, drip, drip of negative publicity in the 25 years since the Maxwell Scandal has not helped matters for pensions and unsurprisingly this lack of trust has left people disengaged, a fact reflected in our low savings rates.
The difference a small increase in charges can make is highlighted by research from the Department for Work and Pensions (DWP), which modelled the effect of different fees on an individual saving for their entire working life. The DWP found their pension income would be more than 25% higher if they saved into a scheme with a 0.5% charge on funds under management
rather than one with a 1.5% charge.
And the figures grow even larger when transferred to the institutional world. Two years ago the £22bn Railways Pension Scheme investigated the fees it paid to its asset managers. After many months, and with great difficulty, it found it was paying considerably more in fees than it had previously thought.
“When we looked at the fees that we apparently paid… into the pooled vehicles that we used to invest primarily in private markets… hedge funds etc, we found that if we added those up and dug as deeply as we could to find them all, the total was actually about four times what we thought it was,”
Railpen chief executive Chris Hitchen says. The scheme has since undertaken a ruthless re-shaping of its portfolio, slashing its exposure to areas notorious for their opacity such as hedge funds and private equity. It has also brought some investment in-house, dramatically reducing the fees paid by the scheme, and consequently its members.
The scheme now employs a full-time member of staff to “keep digging to see what else we can come up with”, adds Hitchen. “We’ve now got it so it’s only about three times what we thought it was, but it’s probably still a lot.”
Railpen’s experience flies in the face of the controversial press release put out by the Investment Association in August, which condemned ‘hidden fees hysteria’ and claimed fund performance over recent years was proof that costs were not damaging returns delivered to investors.
The association released analysis of fund performance between 2012 and 2015, claiming: “The report finds zero evidence that funds’ returns are affected by hidden fees lurking within, suggesting that ‘hidden fund fees’ may in reality be the ‘Loch Ness Monster of investments’,” it said.
The IA later admitted the release was over-defensive and will release its own disclosure code later this year.
