Local government pension scheme managers have demanded greater transparency from asset managers on fees after ministers put pressure on councils to cut investment costs.
Jonathan Hunt, head of pensions and treasury at London’s tri-borough, said “hidden costs” within asset management fees prevented councils from ensuring they got value for money.
Speaking at the National Association of Pension Funds local authority conference, Mr Hunt said: “There are costs that are hard to see on the face of it: transaction costs, trading costs, taxes, third-party brokerage fees, etc. It is all wrapped into the fund managers’ fees. We need transparency.”
Mr Hunt said LGPS managers should determine a way to compare fees for investment services and called for asset managers to give clearer breakdowns of costs.
In the same conference session, Nick Horton, a partner at fund manager Dalton Strategic Partnership, highlighted the complexity of pension funds’ investment management bills.
Mr Horton outlined the three models for investment management fees: flat-rate, performance-based, or ad valorem (based on the value of the pension fund) and urged schemes to ensure these were calculated fairly.
However, he added that pension funds must also pay operational expenses, such as fees for custodian services and dealing with legal and tax issues, and transaction fees, which were incurred when assets were traded, and were not included in the total expense ratio presented to pension funds.