S&P to offer manager appraisal service for U.K. investors

LONDON — Standard & Poor's, London, will launch a money manager appraisal service later this year for U.K. institutional investors, according to Aidan O'Mahony, managing director, pension services.

The service will be a new competitor in the U.K.'s tightly controlled investment consulting market. And while money managers will have to pay for the service, the appraisals will enable them to familiarize plan sponsors with new investment strategies that consultants may have disregarded for lack of track record or patchy performance.

Reports will include a credit assessment of a firm's financial strength; analysis of its investment and operational infrastructure, including reporting and compliance; and analysis of its investment performance by asset class.

The service is unlikely to compete directly with investment consultants that provide advice on asset allocation and make manager recommendations.

"Our job is not to offer short lists or advice," he said.

S&P already provides ratings of retail funds globally, but the focus on institutional money managers is part of a new range of services for pension plans trustees and sponsors that the company is initially launching in the United Kingdom.

S&P is launching the new service in the United Kingdom because recent changes to pension legislation has meant trustees are under greater pressure to make sure their pension plans are adequately funded. Trustees are now encouraged to seek a broader range of advice than they had before, and industry observers have identified a need for greater competition in money manager research and selection.

Plan trustees will be able to access S&P's database of money managers free of charge for use in manager searches, said Mr. O'Mahony, but money managers will pay to be rated.

Managers will pay for a "house assessment," which will include a performance valuation for one asset class. Additional asset classes will be included at an extra cost. The amount of the fees hasn't yet been determined.

S&P will approach money management firms that run assets for U.K. pension plans with a prototype rating model during the summer. The service will be launched in the United Kingdom and "rolled out globally at a later stage," he said.

Investment consultants in the United Kingdom are generally gatekeepers to local pension plan trustees, and it's often difficult for money managers that aren't on consultants' buy lists to get the attention of potential clients, he added.

Mr. O'Mahony conceded that the fee structure might give managers the opportunity to "cherry pick" and seek assessments for only their best-performing asset classes. S&P officials expect managers to be selective, and plan trustees would not be interested in poor performers anyway, he said.

Bill Muysken, global head of manager research at Mercer Investment Consulting in London, said he welcomes greater competition for investment consulting services in the United Kingdom. He added that the new service will address concerns about competition that Paul Myners had outlined in his 2001 report.

Neither Paul Deane Williams, spokesman at Watson Wyatt Worldwide, nor Colin Mayes, spokesman for Hewitt Associates, both in London, were able to comment by press time.

Rick Lacaille, chief investment officer for Europe at State Street Global Advisers, London, said only central banks and larger pension plans with good internal management resources and the ability to choose money managers themselves would probably find an asset manager rating service useful, Mr. Lacaille said. He added that if SSgA's clients wanted the firm to be assessed by S&P, then it would probably agree to pay for an appraisal.

Simon Hill, head of institutional business at Sarasin Investment Management Ltd., London, said asking money managers to pay for a rating could lead to a conflict of interest if S&P gave preferential treatment to money managers that pay.

Mr. O'Mahony said there is no conflict of interest because all managers have to pay to be included in the database, and it's up to the managers whether to participate or not.

Also, while the S&P service may be free to plan sponsors, money managers could increase management fees to absorb their cost, Mr. Hill added.