LONDON - Non-British money managers fear that U.K. proposed performance-measurement standards for specialist accounts will hurt their ability to compete for British pension accounts.
What's more, some U.S.-based managers worry they would be required to submit all of their domestic accounts to a U.K. performance measurer to meet the proposed standard's criteria. At roughly (pound) 800 ($1,280) for each account measured, the costs could be substantial for a U.S. manager with hundreds of domestic-sourced portfolios.
At the heart of the controversy is a requirement under the proposed voluntary code that money managers submit all relevant portfolios with a minimum three-year track record to independent performance measurers for inclusion in composite portfolios.
Managers and measurers would have to agree in advance to exclude any portfolios from the composite, either because of investment or other restrictions imposed upon portfolios (Pensions & Investments, June 12).
But Peter Stanyer, chairman of the Pension Fund Investment Monitoring Group, an industry group, and investment director of Railpen Investments, said fears they would have to submit all their accounts are unfounded.
Suppose a manager has 300 U.S. equities portfolios from U.S. pension funds and three specialist U.S. equities from U.K. pension funds, Mr. Stanyer said. "You could have a compliant track record comprising those three accounts," he said. But some experts questioned whether use of a small number of accounts is truly representative.
David Aron, vice president, Oppenheimer Capital Ltd., London, said the proposal "will be a block for some non-U.K. managers getting into the market. For U.S. managers already in the market, they will be judged on a statistically unjustifiable sample of their work."
Mr. Stanyer further rejected conjecture the proposal was intended to create a windfall for The WM Co. or Combined Actual Performance Services Ltd., Leeds, the dominant U.K. performance measurers. He said managers could turn to any independent performance measurer to calculate a composite return.
Mr. Stanyer suggested U.S.-based managers might be able to submit data measured by custodial banks, as long as there was a way to ensure the manager had not cherry-picked the accounts.
He said the monitoring group welcomes comments on its proposals.
Some noted the voluntary nature of the guidelines. Stephen Tanner, director general of the Institutional Fund Managers Association, London, said: "It's a code and not a rule."
Some pension managers said the standards should not present a barrier to non-British managers - although non-domestic managers generally have met resistance in the marketplace.
"At the end of the day, I don't think it would matter," said David Puddle, managing director of Putnam Europe Ltd., London. He did say, however, that additional costs would be involved, particularly involving personnel and systems.
But critics say WM and CAPS' dominance of the performance-measurement market could make their imprimatur critical among U.K. pension trustees.
"It might be perceived as a disadvantage by U.S. groups if they don't have WM or CAPS verified numbers," said one pension expert, who asked not to be named.
Ian Hogg, managing director responsible for development, who served on the panel, said he favored the standards "because they are a good thing for the market, not because it's a good thing for WM." He added that he had opposed some ideas that would have generated more business for WM, but would have hurt reception of the standards.
Some managers who asked not to be named also questioned whether Bankers Trust Co., which owns The WM Co., ultimately might gain access to their performance data. Mr. Hogg said maintaining confidentiality of client data is critical to his firm's business.
Pension experts also point to the make-up of the monitoring group, noting the presence of both WM and CAPS representatives.
John Clamp, chief executive of CAPS, said: "I don't think there to be anything remotely resembling a conflict of interest" in CAPS and WM officials helping develop the standards.
Rather, the specialist standards were modeled on a performance code for balanced managers developed three years ago - without the input of CAPS or WM officials, he said. That code also requires use of independent performance measurers.
Mr. Hogg added he was able to offer practical advice on how performance measurement works to panel members.
Some managers also complained about the lack of a single representative of a primarily specialist manager on the 12-member panel.
While executives from PDFM Ltd. and Mercury Asset Management PLC served on the group, as representatives of the Institutional Fund Managers Association, they are widely known as balanced portfolio managers, sources griped. Similarly, a Prudential Portfolio Managers Ltd. executive represented the Association of British Insurers on the panel.
"There is not a genuine specialist manager there," said Michael Anthony, director-marketing, Julius Baer Investments Ltd.
Mr. Anthony agreed the proposed code could make it harder for a non-British-based manager to enter the U.K. pension market.
He also noted the code failed to address a number of issues, including how to handle accounts where the base currency is not in sterling, and use of derivatives and hedging strategies.