KPMG’s 2019 UK Fiduciary Management Survey which gathers insights from the UK’s largest fiduciary managers (FMs), found that nearly all (98%) of the trustees surveyed were engaging on ESG matters with their FMs, compared to just over half last year (58%).
However, the data shows that while schemes are looking at ESG, few trustees are designing bespoke policies, and many are heavily guided by their fiduciary management providers’ default positions. Most (87%) had conducted no more than a light touch review of ESG, one in ten (10%) had thought about it carefully and only a fraction (1%) had taken bespoke action.
Anthony Webb, Head of Fiduciary Management Research at KPMG, said: “It’s encouraging to find that environmental, social and governance factors are now firmly on the agenda for trustees and investment committees when discussing strategy with fiduciary managers. However, while their concern matches growing public appetite in this area – combined with regulatory updates – we’ve seen little evidence so far of changes to behaviour. We have seen most pension schemes undertake ‘light touch reviews’ whereas it is the next step of designing and implementing bespoke policies that could lead to real action.”
Industry profile: steady growth, but more to come
The research also provided insight into the state of health of the wider industry. It found that there was a 10% increase in the total number of mandates in the industry in the 12 months to 30 June 2019 to 946, following 9% growth in mandates in the period to 30 June 2018. The expansion in the market means that assets under fiduciary management are £172bn this year, a 21% increase from the £142bn seen in corresponding period ending in 2018.
It found that schemes using fiduciary managers are most likely (63%) to have less than £100m of assets, followed by £100m to £250m bracket, which accounts for just over fifth (22%) of the market. Around 3% of schemes have assets over £1bn.
Anthony Webb added: “The return to growth in the market is encouraging but the increase in new mandates has not yet reached previous levels of 15% annual growth. The sizeable boost in assets under management is significant, but helped by rising gilt values and high levels of liability hedging. We believe that the recent CMA investigation into the industry has held back mandates. We also expect next year’s survey to capture a surge in tenders as some early adopters are required to go back to the market and retender to meet the CMA’s requirements. This may lead to a wider distribution across providers.”
Strategy and end-game planning
The research asked fiduciary managers about their ‘end-game’ plans for their full UK mandates once they have reached full funding on a long-term objective. Nearly half (44%) said that they would look for a buy-out, while just over a third (38%) suggested a run-off.
Fiduciary managers also have a relatively high level of liability hedging with around seven in 10 mandates targeting 80% hedging or higher. Only 27% of mandates had return targets of liabilities +1.5% or less.
Use of independent advice
The survey indicated a surprising fall in the use of independent advice for fiduciary monitoring, countering the increases in previous years. This means a large number of pension schemes using fiduciary management could be at risk of not receiving independent advice on performance achieved and fees spent.
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