MARGIN MARGIN 2017 KPMG UK Fiduciary Management Survey Investment Advisory kpmg.com/uk
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2017 KPMG UK Fiduciary Management SurveyInvestment Advisory
kpmg.com/uk
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2017: Fiduciary management diversity, oversight and transfersPension scheme Trustees continue to hand control of their assets to fiduciary managers. We estimate that 14% of schemes1 now engage with a fiduciary manager – 87 more schemes than in 2016. The range of fiduciary management options is also increasing. More organisations are offering a broad spectrum of different fiduciary management services. Alongside this, Trustees are increasingly seeking independent advice when appointing fiduciary managers, but this oversight is yet to be embedded within ongoing reviews of existing fiduciary managers.
Diversity. There is a huge range of portfolios that fiduciary managers implement for their clients. For example, while half of fiduciary managers in 2017 allocated more than 70% of the growth assets to active funds, a significant minority went mostly passive or 'factor based‘ with their clients’ money. Two clients using two different fiduciary managers can hold very different assets.
Independent oversight. Just over 60% of schemes appointing a fiduciary manager in 2017 received independent written advice on the selection and appointment. This is a big increase from just over 30% in 2016 and applied to both large and small schemes. However, the number of pension schemes who receive independent advice on an ongoing basis remains small –17% of schemes vs 13% in 2016. Independent advice is becoming more common, but most schemes are yet to fully integrate this into the way they operate.
Transfers. Switching between fiduciary managers remains infrequent. Only two fiduciary managers reported winning a new “full fiduciary” client from another fiduciary manager over the period. Of the few pension schemes that did move away from fiduciary management, some had reached full funding, some had gone into the PPF and some had moved from a 'partial' fiduciary arrangement to a 'full' fiduciary arrangement. A fiduciary management appointment is intended to be for the long term. But Trustees should decide in advance what constitutes success and failure, how they measure this, and how they act upon it.
Anthony Webb – Head of Fiduciary Research at KPMG
1 Number of defined benefit schemes using full and partial fiduciary management compared to number of defined benefit schemes in the PPF Purple Book 2016, which listed 5,886 PPF eligible UK Defined Benefit Schemes
The survey results presented are based on the responses we received from the established fiduciary managers operating in the UK pensions market, with data as at 30 June 2017. The measurement period for wins and losses is the 12 months to 30 June 2017.
• Aon Hewitt• BlackRock• Cambridge Associates• Cardano• Charles Stanley Asset Management• Goldman Sachs Asset Management• JLT• Mercer• Kempen• Legal & General• P-Solve• Russell Investments• Schroders• SEI• Willis Towers Watson
We thank each provider for their input in this exercise. We have relied on the information provided to us by the fiduciary managers as being correct.
We asked fiduciary managers to tell us how they would invest the assets of a scheme with £500m of assets targeting a return of Gilts + 3% per annum. The range of responses is set out below.
Asset allocation1
Portfolios differ widely although the majority favour high hedging levels
0%
20%
40%
60%
80%
100%
Active Factorbased
Passive
Equity
Credit
ernatives
Property
Interestte hedgeInflationte hedge
2
2
0% 20% 40% 60% 80% 100%
Alt
ra
ra
1Active and passive funds
Active funds are favoured but some portfolios use mostly passive funds
How to read the charts
The white lines represent the complete range of responses. For example: the highest allocation to active funds was 95% of assets1 and the lowest was 5% of assets.
The white rectangles show the middle 50% of responses. For example 50% of managers allocated between 25% and 85% to active funds. 25% of managers allocated more to active funds than this range, and 25% of managers allocated less.
The purple lines show the average (median) response.
Change vs 20163
1 Expressed as a percentage of non LDI assets2 Expressed as a percentage of Scheme assets3 Change is defined as a majority of fiduciary managers increasing or decreasing their allocation
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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2017 HighlightsContinued growth in the number of mandates
(some schemes using “partial FM” switched to “full FM” mandates over the year)
Note: Some providers restated 2016 figures.
Continued growth in assets under management
Note: Some providers restated 2016 figures.
Proportions of mandates by size
Big and small schemes are using fiduciary management.
This distribution is equivalent to the proportion of big and small pension schemes in the UK.
nd
ow
kare
Bt
kear
M
Number of fully delegated mandates by provider type
“Consultants” continue to manage the majority of mandates.
Independent advice
We define independent advice as written advice provided to the Trustees from a third party.
60% of new appointments this year were advised by an independent third party.
2016 2017
17% of schemes use an independent third party overseer in conjunction with their fiduciary manager.
2016
13%
2017
17%
60%
31 57 79
104 105 125 135205
232262 259
2836
4769
135174
211
303
377
456
546
0
100
200
300
400
500
600
700
800
900
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Partial Full
Total mandates in the UK
805
Mar
ket
Siz
e
Tota
l man
date
s
10 1824 28
28 31 30 3447 46
53
22
38
1723 29
38
53
68
82
0
20
40
60
80
100
120
140
160
£(bn)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Partial Full
Sources for data in this survey:
Fiduciary providers and KPMG calculations.
Additional Notes:
Unless labelled for full or partial mandates, data/comments are shown for full FM mandates only. Where data was not available for a specific question from a fiduciary manager, this manager was excluded from that part of our analysis. This is not expected to have a material impact on the figures.
Assets under fiduciary management
0 100 200 300 400 500 600
2017
2016
Consultant Specialist Investment Manager
63% 23% 9% 3% 2%
<£100m £100m to£250m
£250m to£500m
£500m to£1bn
>£1bn
£135 billion
33%
2% 2% No change No change No change
Change over the year
2017 distribution of mandates
Ass
ets
unde
r m
anag
emen
t
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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KPMG and fiduciary management advice
Where does KPMG fit in?
KPMG is experienced in providing independent advice on a wide range of aspects of fiduciary management.
This includes the following:
• Governance assessment
Deciding if fiduciary management is appropriate, and if so, which governance structure is right.
• Fiduciary management selection
From setting criteria to assisting with selection exercises.
• Mandate & guidelines set-up
Setting up and designing the framework against which to measure the provider.
• Ongoing monitoring & reporting
Independently checking progress against objectives and providing challenge where necessary.
• One-off independent reviews
Assessing the manager’s progress since inception, and providing insight into its capabilities.
Anthony Webb FIA
Head of Fiduciary Research, Investment Advisory
KPMG15 Canada SquareLondon E14 5GL
+44 (0)20 7311 8508+44 (0)75 5758 [email protected]
Faye Mullen CFA
Executive Consultant,Investment Advisory
KPMG1 Sovereign SquareLeeds LS1 4DA
+44 (0)113 231 3076+44 (0)74 6835 [email protected]
Editors: Anthony Webb, Faye Mullen
Authors: Daniel Walsh, Alexander Owen, Shawn Mwatu
Definitions used in this survey
Full delegation – the fiduciary manager is typically engaged under an investment management agreement to manage 100% of scheme assets. The services provided include all or the majority of the following: journey plan design, strategic and tactical asset allocation, growth and matching portfolio structuring, manager selection, implementation and administration.
Partial delegation – Trustees delegate only a subset of the investment management to provider. The subset may comprise a portion of the scheme assets or a portion of the “full fiduciary” responsibilities.
For further information on fiduciary management…
…please see our three page guide, which addresses the questions:
• Is fiduciary management right for me?• How to choose a fiduciary manager?• Keeping your fiduciary manager on track.
This is available at the link:https://home.kpmg.com/uk/en/home/services/tax/pensions/fiduciary-management-advisory.html
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.