UK pension funds let down by investment managers’ misalignment over fees – LCP

Pension scheme trustees are paying high fees to investment managers without necessarily seeing corresponding improvements in fund performance, according to LCP’s latest Investment Management Fees Survey 2011.

LCP’s report compiled responses from leading investment managers in the UK, responsible for managing over 80 per cent of assets of the occupational pension funds in the UK.

The results show that in the year to 30 September 2010, investment management fees paid by trustees increased by around 11 per cent, or £300 million across the industry compared with last year. This is almost exclusively as a result of a recovery in market values. For example, a typical manager with a £50 million emerging markets mandate, who failed to beat the market, see an increase in their fees of more than £100,000 over the year.

The research also found indirect costs, such as those charged within pooled funds, are particularly high within hedge funds and property funds. In some instances the total level of fees charged, including indirect costs, could be more than twice the annual management charge.
It also found that the level of disclosure by some managers of these indirect costs was poor, and increasingly complex investment arrangements were adopted, in part to manage investment risks more closely, resulting in higher fees but with no obvious improvement in long-term investment performance.

Mark Nicoll, Partner at LCP, says: “There is always a temptation not to worry about fees when markets are rising. But the opposite should be the case. Against the background of continued pension deficits, trustees need to look at the running costs of their pension schemes.”