This murky state of affairs has lead some in the industry to take action independently, however, leading to the creation of groups such as the Transparency Task Force (TTF). The TTF, which has been up and running for just over a year, is made up by representatives from asset owners, consultants and asset managers.
In September it held the first ‘Transparency Strategy Summit’, which took place at the House of Commons and involved presentations from The Financial Conduct Authority, The Pensions Regulator and Conservative MP, Tom Tugendhat.
The TTF is also part of the advisory board set up by the Investment Association to create a disclosure framework for investment costs. Chaired by NEST chief investment officer Mark Fawcett, the aim of the Board is to create a ‘standardised disclosure code’ for asset managers to show investment costs.
TRUSTEES IN THE DARK
The chief aim of the TTF is for asset managers to clarify their fees, but chairman Andy Agathangelou says part of the issue lies with pension scheme trustees not understanding much of what is put in front of them.
“It’s all about an asymmetry of information whereby the trustee board is not privy to the information that they really ought to be aware of,” he says. “There are all sorts of clauses in mainstream institutional workplace pension contract provision clauses, mandates that have crept in from the world of private equity and hedge funds. I was with some trustees last week who openly said to me they don’t read the stuff they sign. They hope the investment consultants have got their back covered, but if you then challenge the investment consultant, no, no, no, the investment consultant is not responsible for the contract the trustees sign up to.”
The risks are exacerbated by the fact that for the most part, trustees make their investment decisions with a “complete lack of accountability”, says Agathangelou. “No explanation is required as to what they’re doing or why, no record keeping of what the impact of their decision-making is.”
So if trustee boards should start reporting their decisions, exactly who should they be reporting to? Agathangelou argues pension funds could follow the lead of their sponsoring employers. He says public corporations have had to become far more transparent through shareholder meetings and annual reports.
“The good news is we don’t have to reinvent the wheel here,” he says. “What we’re saying is maybe a good idea would be for schemes to have a website. It doesn’t have to be expensive, but a website where key decisions and the reasons for those decisions are recorded, where each year the members of the scheme, whether it’s a trust-based scheme or a contract-based scheme, can open up the whole process to scrutiny. ”
PLAYING HARD TO GET
The problem cannot be laid at the door of ignorant trustees entirely, however. Many boards who have asked their asset managers for information have either hit a brick wall or been deluged by a data dump.
Andrew Warwick-Thompson, executive director for regulatory policy at The Pensions Regulator agrees it’s a problem: “I know anecdotally from speaking to trustees that some of them have had a great deal of difficulty in getting the kind of management information they would like in the format that they would like to have it from some investment managers,” he says. “Clearly we are sharing that information with our colleagues in the FCA and it remains to be seen what steps are taken, but I do know the FCA themselves are taking that very seriously.”
Finexus director and former UK managing director of Kas Bank, Chris Sier has been fighting for improved transparency for the best part of the last decade. He has reported to the government on the matter and was instrumental in setting up the TTF, only to depart in protest over its willingness to join the IA’s Advisory Board.
Sier’s requests for data have repeatedly been met with silence or worse from the asset managers, but his work on behalf of pension funds is slowly but surely gaining results.
“Over the years I’ve spoken to a lot of pension funds and some have asked me to help them gather this data,” he says. “When I’ve gone to gather that data from their asset managers I’ve had all kinds of responses.
“The first is: ‘we don’t give this data out to anyone’. I’ll tell them I’ve been asked to do this by the trustees and then they’ll say, ‘well, the trustees don’t need it’. At this point the trustees will ask and say they want it. The manager will then say contractually they’re not obliged to give it, to which the scheme will often reply that if they don’t give it they’ll figure out a way of leaving them as a fund manager.
“Finally the manager will say they’ll send over some of the data. I’ve got a standard data request that I’ll use and it’s always the wrong data they send.”
