Plan Sponsors Do Hold Fund Managers To Account

24 July 2012 (PLANSPONSOREurope.com) - Plan sponsors are rising to the challenge of holding investment managers to account, Charles Cotton, Performance and Reward Adviser at the Chartered Institute of Personnel & Development, has told PLANSPONSOR Europe.

Cotton’s comments follow yesterday’s publication of Professor John Kay’s Final Report of his independent review to examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies.

Following publication of the review, Malcolm McLean, consultant at Barnett Waddingham told PLANSPONSOR Europe UK plan sponsors’ pension funds need to hold investment managers to account for delivering good returns not least because failure to do so could affect plan sponsor’s ability to maintain their plans.

Cotton told PLANSPONSOR Europe: “I think that plan sponsors do hold their fund managers to account. They want to ensure that their employees have a sufficient fund to allow them to purchase an annuity that will give them a decent income in retirement. The danger is if this does not happen then their employees will have to stay at work for longer, with implications for talent recruitment, development and management. I also think that most trustees also question what their fund managers get up to in terms of investment decisions and costs/charges ensure that the scheme has enough funds to meet their commitments. Possibly, there is more focus on the bad time and not enough in the good times (hopefully, not too far away) because fund managers are meeting or exceeding their targets.”

Zoe Lynch partner at law firm Sackers told PLANSPONSOR Europe plan sponsors will be watching the fallout from the Kay Review closely.

“As many scheme trustees must agree funding strategies with their sponsoring employer, it will be interesting to see whether the pressure to avoid "short termism" will be well received by the sponsoring employer. Sponsoring employers have different agendas to trustees. Whilst trustees can look to the long term and the full life cycle of the scheme, many directors will be feeling pressure from shareholders looking to see pension investment deliver short term results in reducing deficits.”

Meanwhile Sean O’Hare, remuneration partner at PwC, says employers need to be aware of the “unintended consequences” of the Review.

“It is good news that Kay is encouraging more of a long-term focus, with the long-term return to shareholders central to this. The proposal that executives should only have restricted shares with no performance conditions in the company, rather than the current complicated long-term incentive plans, is to be welcomed. But we need to be aware of unintended consequences, particularly Kay’s proposals that individuals hold their shares until after they leave the company. This may encourage a higher turnover of executives, or early departure if they feel the share price has peaked, so they can realise some of the value. It might be better to allow them to sell 50% of any shares in the company in order to diversify their portfolio, while retaining the other 50% until after they leave the company. Many remuneration committees and executive directors will welcome the simplification that Kay proposes.”

Related story: http://www.plansponsor.com/Hold_Investment_Managers_to_Account_for_Delivering_Good_Returns.aspx 

PLANSPONSOREurope Staff
editors@plansponsoreurope.com