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The Actuary The magazine of the Institute & Faculty of Actuaries

UK pensions fiduciary management market hits £40bn

The figure accounts for over 200 pension scheme mandates after rapid growth in the last five years, but the firm says that opinion varies widely as to future prospects.

KPMG's 2011 Fiduciary Management UK Market Survey, published today, shows that implemented consultants hold a significant majority market share compared to specialist providers and asset managers.

It also reveals that a significant number of fiduciary management (FM) appointments have been made without going to market or considering more than one potential provider.

However, the firm expects that, as awareness of FM solutions grows, trustees and companies looking to appoint a fiduciary manager will take a more competitive tender approach.

Patrick McCoy, KPMG pensions partner and head of investment advisory said that the survey showed a wide variation in success criteria and performance measurement, which made the establishment of market benchmarks and comparators difficult.

"While the industry uses performance fees to a large degree there is no consistent definition and application of performance fees," he said.

"These findings are in line with our experience at KPMG where we see a lot of demand for independent advice in setting up performance measurement and compensation structures for FM.

Mr McCoy expressed the belief that there will be increased pressure on providers to offer transparency and adhere to market standards as these develop.

"Going forward, we also expect that the majority of FM appointments will be made via a competitive tender process - as is the case with nearly all other investment management appointments," he said.

Expected proportion of UK pension schemes engaging in an FM solution over the long term

Consultancies 25% to 50%
Specialist Providers 10% to 75%
Investment Managers 10% to 50%

Source: KPMG LLP (UK) 2011

Survey highlights and trends:
• The UK FM market currently stands in excess of £40bn, which equates to c.4% of total UK pension scheme AUM (£926m as at 31 March 2010 - Source: 2010 Purple Book)

• There are over 200 UK pension scheme mandates within the UK FM market

• There are currently over 140 fully delegated FM mandates in the UK representing an AUM of c.£20bn

• There are currently over 60 partially delegated FM mandates in the UK representing an AUM of c.£18bn

• There is also a significant volume of ‘manager selection' fiduciary mandates in existence - whereby clients only delegate investment manager appointments

• Implemented Consultancy practices dominate the UK FM market with a significant market share majority in terms of both number of mandates (c.70%) AUM (c.60%)

• Implemented Consultancies hold the greatest number of FM mandates within the UK mandate but given their reduced market share by AUM, specialist providers and investment managers must, on average, hold larger mandates

• There is no "correct" or "optimum" scheme size for Trustees making a decision to adopt or investigate a fiduciary management solution

• Certain providers do have a minimum mandate size in terms of AUM

• Within the UK, a significant number of FM appointments have been made without consulting alternative providers or considering the wider market

• From the information provided KPMG understands there have been no mandate terminations in full or partial delegation mandates.

Source: KPMG LLP (UK) 2011