Covid-hit fiduciary management market gains 70% in 5 years – DB & Derisking

The fiduciary market grew 73 per cent by number of clients and 71 per cent for assets under management over the past five years, producing the 11 per cent annualized growth rate.

IC Select’s survey, which polled 14 fiduciary managers leading up to December 2021, showed that these figures represent a marked slowdown on pre-2016 levels, when the number of funds grew by 27 per cent a year.

The report, published on September 21, also showed that few schemes are commissioning independent oversight, despite attempts by the Pensions Regulator to encourage greater take-up.

While the Covid pandemic initially caused a slowdown in the number of schemes converting to fiduciary management, it would appear that its longer-term impact has been to cause a number of schemes to reassess their investment governance approach so as to be better prepared and nimbler for future problems

Anne-Marie Gillon, IC Select

Covid hits growth rate

The reason for the slowdown from the 27 per cent a year growth rate in the five years leading up to 2016 was partly due to the earlier period starting from a much lower base, and partly due to the impact of Covid-19 on selection processes, the report explained.

Avoiding the impact of the pandemic by considering the five years to 2019, the number of schemes converting to fiduciary management was stable at around 60 per year, but this “declined significantly” from 2020 when the impacts of the coronavirus were felt.

A subsequent recovery in 2021 still fell 25 per cent short of pre-Covid levels, though it was additionally hampered by the “considerable strain” placed on managers by the Competition and Markets Authority’s new retendering guidelines.

There was, however, a “dramatic increase” in the size of schemes converting to fiduciary management, the report continued.

“During 2021, the average size of a converting scheme increased by £184mn, or 120 per cent, to £334mn. This followed several years of the figure being relatively stable at around £150mn.

“This increase intensified throughout the year, from £260mn at the end of June to £334mn by the year-end, as more large schemes moved to fiduciary management.”

Despite this, smaller schemes continued to dominate the market. More than half (56 per cent) of schemes by number of assets had less than £100mn, while 40 per cent had assets below £50mn.

By contrast, if assessed by assets, more than half (54 per cent) were in schemes with more than £500mn in funds under management, with schemes with more than £1bn in assets comprising 45 per cent of the total — though the report noted that a “significant contribution” to that percentage was made by just two schemes, the British Airways and National Grid schemes.

IC Select director and head of research Anne-Marie Gillon said: “While the Covid pandemic initially caused a slowdown in the number of schemes converting to fiduciary management, it would appear that its longer-term impact has been to cause a number of schemes to reassess their investment governance approach, so as to be better prepared and nimbler for future problems.

“This trend has been particularly noticeable at some larger schemes that are now looking to delegate the implementation of the trustees’ strategic investment decisions.”

CMA retaining still taking effect

The CMA required that all schemes that had entered into a fiduciary management agreement without conducting a competitive tender had to carry out such a process by June 2021, or five years from the start of their arrangement.

In the period covered by the survey, most retainers were for schemes with less than £250mn in assets under management, with only 18 per cent of schemes having more than £250mn. More than eight in 10 (81 per cent) of retainers saw the incumbent provider retained.

The survey also found that, although 239 retainers had been completed in the past two years, a further 44 will be needed going forward.

“As these will all have to take place within five years of the original orders, so the latest CMA retender deadline will be June 2024. This suggests a run rate of CMA tenders of little more than one per month on average,” the report explained , adding that this was “well within the capacity of the fiduciary management sector to absorb without a strain on resources”.

Of the 44 non-CMA retainers — presumptively resulting from trustee dissatisfaction with their existing provider — 89 per cent were won by a competitor company.

Too little oversight

Despite keenness from TPR for schemes to commission independent oversight of their fiduciary management arrangements, the IC Select report found that uptake remained low.

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Only 30 per cent of schemes have oversight provided by an independent company. Where it does exist, oversight tends to be applied to larger schemes, with 79 per cent of schemes with assets of at least £1bn having independent oversight, the report explained.

By contrast, the figure stood at 44 per cent for schemes with assets between £250mn and £1bn, and only 24 per cent among those with assets of less than £250mn.

Where advice is concerned, 92 per cent of schemes using a fiduciary manager receive strategic advice from the same provider, and just 8 per cent use a different company — a figure little changed from 2015’s position, where 7 per cent had a different strategic adviser.

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