Pension Protection Fund, London, expects to spend more on money manager fees as assets grow for the U.K. lifeboat fund, according to its strategic plan for the next three years released Tuesday.
The PPF, which takes on the payment to members of defined benefit plans in the event of an employer's insolvency, has £15.6 billion ($26.3 billion) in assets. That figure is expected to grow 40% by the end of the 2017 financial year, to £21.8 billion as the PPF takes on the pension funds of additional insolvent firms.
As a result, money manager fees are expected to increase 41% to £120.6 million by fiscal year 2017, according to the document.
“Outsourced deliver services (which include money manager and custodian fees) are expected to increase by 29% from £99 million (for fiscal year 2014) to £128 million (for fiscal year 2017),” the PPF wrote in the document.
However, as the fund gains scale, costs will change. “While the weightings to alternative assets impact fees, the overall cost is contained (as a percentage of assets) as we benefit from tiered fee scales and tighter negotiations.” The PPF plans to add additional illiquid assets to its portfolio. It said it would have made “substantial progress in our migration plan” to add these allocations by March 31, 2015.
Fees paid to the fund's custodian, State Street, “are higher, now including collateral valuation costs previously included in the fee charged by our liability-driven investment manager,” it wrote.
As a result of these anticipated costs, the PPF's 2015 budget is £167.1 million, a 22% increase on the £137 million forecast for 2014 fiscal year. “This is due to the increased fund manager fees in line with the anticipated £1.9 billion growth in assets … and migration to the new” asset allocation, the PPF wrote.
Consultant fees, however, are expected to rise only 25% by 2017, to £2 million. “We continue to use external advisers where this represents value for money and where we are obliged to do so, and we plan to contain these costs at current levels which represents a real terms saving in spite of continued significant growth in the business,” the PPF wrote.
A spokesman for the PPF was not available to comment by press time.