Merchant Navy Ratings Pension Fund has created a three-person oversight committee to monitor the performance of its newly appointed fiduciary manager, an area of scheme investment that is notoriously difficult to benchmark.
Fiduciary management strategies will account for one-fifth, or £200bn, of all UK defined benefit scheme assets by 2024, according to research last month from Buck Consultants and data research specialists Spence Johnson.
Despite a rise in the number of competitive tenders for new appointments, existing relationships continue to be a dominant driver behind schemes’ selection of a fiduciary manager.
Oversight committee
Against this backdrop, the trustee of the £850m Merchant Navy Ratings Pension Fund pursued a “full search and selection process” prior to the appointment of its incumbent consultant Towers Watson as fiduciary manager to the fund in November 2014.
We have an expert eye and ask those pertinent questions – our job is to pick those points up and be a catalyst for informed debate
David Clare, Barnett Waddingham
“While they were the incumbent, we did go through an incredibly transparent selection,” said Chris Wagstaff, independent chair of the MNRPF investment committee.
Wagstaff said a key focus of his three-year tenure at the fund has been to ensure trustees have enough time to focus on the more strategic aspects of investment and governance, including long-term risk management.
“It was apparent to me that given the amount of time and the investment skills and governance around [the] table, that might not be feasible given that increasingly pension funds need to look at more governance-intensive solutions,” he said.
MNRPF already had relatively sophisticated and high-governance investments in place, but Wagstaff said the addition of a fiduciary manager has allowed the fund to boost its diversifying characteristics.
In addition to a transparent due diligence prior to the appointment, the fund has created a three-man oversight committee to monitor the strategy on an ongoing basis, composed of Wagstaff, David Clare, independent intermediary and partner at consultancy Barnett Waddingham, and Bob Hymas, chief financial officer to the Merchant Navy Officers’ Pension Fund.
“In formal meetings every quarter, the three of us will [look at] what Towers Watson have been doing… at the ways in which advice has been executed and implemented,” said Wagstaff.
Where there is a fiduciary manager who has a reputation for offering very complicated solutions and not communicating them in the clearest way to trustees, having someone independent who can a) monitor, and b) translate what is going on into terms the trustee can understand – there is merit in that
William Parry, Buck Consultants
Clare said independent oversight provides trustees with the ability to “read between the lines” of their strategy.
The combination of fund management, audit and investment consulting expertise on the committee provided strong oversight of Towers Watson’s ongoing performance, communication and strategy.
He said: “It’s not just a box-ticking exercise; I know the questions I wouldn’t want to be asked if I was a fiduciary [manager] – that’s how I can help the trustee.”
“We have an expert eye and ask those pertinent questions – our job is to pick those points up and be a catalyst for informed debate.”
Adding value
William Parry, investment consultant at Buck Consultants, said the industry needs to be pragmatic about “who guards the guardians” in fiduciary management – particularly the extent to which additional layers of oversight impact on trustee boards’ governance time and fee budget.
“Where there is a fiduciary manager who has a reputation for offering very complicated solutions and not communicating them in the clearest way to trustees, having someone independent who can a) monitor, and b) translate what is going on into terms the trustee can understand – there is merit in that,” he said.
Parry added funds are making use of independent experts in a variety of ways.
“This ranges from something as simple as an independent trustee providing a list of names for a selection exercise, going all the way to a dedicated research resource that helps set the wider strategy of the pension fund,” he said.
