Myners Points To Problems In Short-Term Pension View Among UK Consultants

Myners – d irector of HSBC Actuaries and Consultants Ltd – made his remarks in a Financial Times article to try and emphasize many of the problems associated with the valuing of pension fund investments in the short term .   “The consultants’ emphasis on the short term is a problem – and one not simply affecting a proper assessment of their competence,” Myners wrote, according to an IP&E report.

Adding, “many fund managers appear to have concluded that under the short-termist regime promoted by consultants, there was no case for seeking to achieve superior returns by taking a markedly contrarian investment stance.”

However, in a rebuttal, the Society of Pension Consultants said the focus on the short term was not of their doing, instead one created by Minimum Funding Requirement (MFR) and the FRS 17 accounting standard.   “There’s no doubt that the MFR and accounting standards have led to a greater analysis of the short term,” said the Society’s spokesman Roger Mattingly, adding that the current environment does not encourage radical decisionmaking by pension fund trustees.

Myners does not hold much regard for this argument, instead focusing on what he dubs a “herd mentality” adopted by managers, who do not want to doubt the approach taken by consultants. “It is a fact that being in or out of favor with the consultant is the key to success or failure in winning mandates from pension funds,” said Myners.

Further, Myners said that the switch to specialist mandates that was sparked by consultants has meant that asset allocation has been overlooked, with “dire consequences”. Yet, Mattingly takes exception to this remark, instead saying pension funds would have lost more under the balanced mandate system during the market downturn because equity exposure had fallen with specialist mandates.

Across the pond, many pension fund managers are watching the development in the FRS 17 debate with some trepidation due to the potential impact a complete marking of a plan’s assets to market every year would have on the US pension system.   Already, FRS 17 is having an impact in the time between its adoption by the Accounting Standards Board in late 2000 and its full implementation by 2005.    Among them is a drive to switch UK pension plan assets out of equities and into bonds and closing these plans to new hires, who typically are being offered only a defined contribution plan instead.