U.K. fiduciary management, once dominated by investment consulting firms, is changing, with money managers adding resources, increasing expertise and gaining traction in a growing market.
“Recent entrants are probably a bit behind, but it is also probably a good time to enter the market,” said Nigel Birch, London-based director at institutional investment research firm Spence Johnson Ltd., which has looked at the U.K. fiduciary management market over the past few years.
“It has matured to an extent where fiduciary management is seen as less of a new idea. By understanding its unique value proposition and the new skill sets required beyond traditional consulting, schemes are more likely to go through tender exercises and at least look outside of their incumbent consultants.”
Research into the U.K. fiduciary management market shows a shift in this direction. Investment consultants controlled 75% of fully delegated fiduciary management allocations for the year ended June 30, according to KPMG's 2013 U.K. fiduciary management market survey. That's about 5% less than a year earlier, KPMG reported.
Money managers account for 3% of fully delegated fiduciary management arrangements, increasing a market share to seven of the 211 contracts active at the end of June 2013 — which seems small but represents a 75% increase from their share a year earlier.
“The winners so far have been the consultants that are seen as trusted advisers to implement advice on (behalf of trustees),” said Ian Barnes, managing director and head of UBS Global Asset Management in the U.K. and Ireland, based in London. “The problem is that consultants do not (traditionally) implement and have that (trading) experience. The big fear in the industry is that one of the consultants has a blowup, because implementing advice is very different to giving it. If that happens, it will either kill the fiduciary management market or really open the door for asset managers.”
The total fiduciary management market encompasses about £58 billion ($96.7 billion), according to KPMG's 2013 survey. That equates to about 5% of total defined benefit assets in the U.K., using the most recent data from the Purple Book, which covers the U.K. DB market and is compiled by the Pensions Regulator and Pension Protection Fund. That compares to £40 billion, or around 4% of total DB assets, in KPMG's 2011 survey.
And that is set to get bigger, say incumbent players.
“There is significant appetite and demand in the U.K. from pension fund trustees and also from corporates,” said Mark Davis, Reigate-based head of business strategy, delegated investment services, at Towers Watson & Co. Towers Watson manages $60 billion of assets on a fiduciary management basis globally, split between about $40 billion in the U.K. and the remainder in the U.S.
Among the money managers looking to take a slice of an increasingly large pie is Goldman Sachs Asset Management.
The firm already has about £15 billion of fiduciary management business globally, but is now looking to combine its fiduciary management experience elsewhere with its U.K. businesses and “build a strong offering here in the U.K.,” said Kathryn Koch, London-based head of global portfolio solutions international at the $919 billion money manager. “We are making an effort and have resourced the team to pursue the fiduciary management opportunity in the U.K.”
Goldman's fiduciary management offering sits within the 60-person-strong global portfolio solutions business. It also draws on its manager selection business, which has a staff of 275 globally.
As part of the push into fiduciary management in the U.K., GSAM has grown its global portfolio solutions business. “In London we have added resources both to the investment center as well as to portfolio management. Between when I joined in April 2013 and now, we have doubled the size of the team here in London to 12 people,” said Ms. Koch.
BNP Paribas Investment Partners is also looking to enter the U.K. fiduciary management market, extending the services it has offered in the Netherlands since the mid-2000s. “We are in the process of hiring people in the U.K. market,” said Charles Janssen, head of multiasset solutions at BNP Paribas Investment Partners, in London and Amsterdam. The firm is now recruiting for a portfolio manager and a business development executive to work on the fiduciary management business, drawing on the Netherlands team for support.
“We see strong demand on the corporate side (for fiduciary management services), looking at monitoring and managing their liabilities more actively. That is where we can add a lot of value,” he said.
Allianz Global Investors Europe GmbH is looking to push into the U.K. fiduciary management market. “We are in the process of hiring an expert for our pensions advisory and solutions business in the U.K.,” according to a statement by a spokeswoman for the firm. “Part of the role would be to offer fiduciary management services to pension funds.”
UBS Global Asset Management is also looking to enter the growing fiduciary management market in the U.K., although as an investment partner to a consultant rather than by providing these services itself, confirmed Mr. Barnes.
“We don't have fiduciary management in the U.K., and there are no short-term plans to do that. Our strategy is to be a provider to the fiduciary managers. Tier-two consultants have the ability to get into that market, and we would look at being a provider in the fiduciary management marketplace through closer alliances. Very few consultancies have the investment framework needed on a platform (of this kind), and the global risks systems around that.” Mr. Barnes said UBS GAM is having conversations around potential alliances.
Not gone unnoticed
These efforts by money managers have not gone unnoticed by existing players. “There does seem to be an awful lot of activity from a number of would-be practitioners,” said Colin English, director, head of business development for Russell Investments' pension solutions group, who is in London.
“There has been a big pickup in the last month or two on recruitment representatives trying to poach or find staff for existing and/or new fiduciary teams.”
The U.K. market is also beginning to see signs of pension funds looking to embark upon new procurement processes to potentially hire a replacement fiduciary manager as contracts come to an end and trustees begin to evaluate the services they have received — an opportunity for money managers and specialist firms to pick up business.
“We are beginning to see second-generation fiduciary clients, and increasingly early adopters re-evaluating their existing suppliers,” said Spence Johnson's Mr. Birch. “This may be with a serious view to changing suppliers, if their situation has changed for example, and they are looking for a new skill set, or it may be just lip service, looking to reduce fees perhaps. Undeniably, however, there is a large book of business that new suppliers could get a look at, even if it is a small glimpse.”
That investment consultants seek to convert clients to fiduciary management arrangements remains a bone of contention for the industry. However, there are signs this is changing. “This process in the U.K. whereby there weren't open tenders goes back five or six years, and it seems to be dying out,” said Ian Love, managing director of U.K. institutional business development at SEI Investments (SEIC) in London. “That is a positive for everybody, particularly trustees.” SEI manages £45 billion of assets under fiduciary management arrangements globally.
Won through open tender
Dan Melley, London-based partner and head of Mercer Ltd.'s fiduciary management business in the U.K., said 75% of its allocations were won through open tender in 2013, with the remaining quarter of contracts from clients of Mercer's investment consulting business that have worked with the firm for a number of years.
And Sion Cole, London-based partner and U.K. head of client solutions-delegated consulting services at Aon Hewitt, said 100% of its fiduciary management business was won through open tenders in the last 12 months, with its internal clients going out to the market as well, and 70% of its business since it won its first client in late 2009 has been won from non- Aon Hewitt investment clients.
Russell Investments has already picked up two allocations this year, Mr. English said, while Aon Hewitt has experienced 50% year-on-year growth on its fiduciary management assets. Mr. Cole said the firm's fiduciary management team is in contract negotiation with a number of funds with a combined AUM of £1.2 billion.
“I wouldn't bet against the U.K. market getting to 80% or 90% of DB assets governed under a fiduciary management approach ... but it might take another 15 to 20 years,” said Mr. English. “The Netherlands (where about 85% of DB pension assets are run under a fiduciary management arrangement) was slow to take it up and only shot up significantly when the big industrywide funds signed on.”
Russell has £12 billion of fiduciary assets under management in Europe, the Middle East and Africa, with about two-thirds of that in the U.K. n
This article originally appeared in the March 3, 2014 print issue as, "Fiduciary management seeing manager influx".