Local Government Pension Scheme (LGPS) funds have unexpectedly been included in new Competition and Markets Authority (CMA) requirements covering relationships with external fund managers and investment consultants.
The CMA has included the LGPS in an order published last week, requiring pension funds to publish objectives for consultants and should include a clear definition of the outcome expected and timescales for achieving this.
In a previous draft of the order, published last year, LGPS funds had been exempt from the rules, but this exemption did not make it into the final order.
John Wotton, chair of the CMA’s investment consultants market investigation, said: “Our investigation found that many trustees lack the information needed to assess and compare investment consultants and fiduciary managers, meaning they may not be getting the best value for their members’ money.
“By putting the requirements of our investigation into law today, we will increase competition and make sure these markets work better for UK pension beneficiaries.”
The CMA order stipulates that pension scheme trustees (now including LGPS committees) should set objectives for investment consultants that should:
- be ‘closely linked’ to the fund’s investment objectives;
- be reviewed at least every three years and after a significant change to the investment strategy or objectives
LGPS funds which fail to set objectives by 10 December this year, could be taken to court by the CMA.
David Walker, head of LGPS investments at pension consultant Hymans Robertson, told Room 151: “This is a positive step. Our clients will have to set us objectives, and that will help them clarify their objectives “Some funds are still working on what those are.”
However, he said that other requirements in the order could affect the relationships that funds have with their pools.
This is because the order creates a number of duties for pension schemes covering their relationships with their fiduciary managers.
Funds wishing to delegate investment decisions for 20% or more of their scheme assets must run a competitive tender when first purchasing fiduciary management services.
Funds who have already appointed a fiduciary manager for 20% or more of their scheme assets without a tender must go out to tender within five years.
In addition, fiduciary managers will be required to provide more information on fees and performance, to allow funds to compare performance more easily.
Walker said: “These requirements could impact on funds’ relationships with pools.
“It raises the question of what exactly is a fiduciary relationship – it will require engagement with the CMA to get clarity on that, and whether these rules cover the funds’ relationships with pools.”
