Mercer Launches FX Audit Service

January 6, 2003 ( - Mercer Investment Consulting has teamed up with Record Currency Management to offer a foreign exchange audit service designed to help pension trustees know what foreign-exchange rates they are paying.

Prior to finalizing the deal and introducing the service in the Americas, Mercer and Record worked with a range of UK pension funds to collect data on their investment managers’ and custodians’ foreign exchange transactions.

According to Mercer, they found that typical foreign exchange turnover ranges from 50% to 100% for international asset allocations. In one case, Mercer said they found that only half of the fund managers engaged by a particular pension plan were trading foreign exchange on a competitive basis. The other half cost the funds 43 basis points of turnover, compared to less than 8 basis points for competitive managers.

Costs Overlooked

“Institutional investors and investment managers often overlook foreign exchange transaction costs, yet better management of these transactions can enhance returns,” says Jeff Kearny, director of Mercer’s custody research group for the Americas.

“Ultimately, excess costs reduce the fund’s value unnecessarily. Investors can often obtain significant savings by simply opting to monitor the foreign currency transactions done on their behalf,” according to Neil Record, chairman and chief executive of Record Currency Management.  Keany claims that by paying closer attention to foreign exchange management, it is possible for institutional investors to realize savings of 20 basis points or more annually.

Record Currency Management was founded in 1983 by Neil Record, a former economist at the Bank of England who has worked in the Bank’s economic forecasting unit.

More information on the new service is available at