Very few pension fund professionals plan to outsource to a fiduciary manager based on the results of a global bfinance survey. The poll, completed by a total of 88 executives who oversee pensions around the world, shows that while market conditions have prompted pension funds to focus more on their long-term pension strategy, the overwhelming majority (91%) have no intention of changing their governance model. Interestingly, not one respondent says they plan to switch to a fiduciary provider while only 9% say they may do so.

As pension funds hire external expertise, one question they may ask is whether to outsource to a single third-party fiduciary provider or turn to a more specialised consultant with competencies in asset manager selection or strategic advice. Our results show that a more specialised approach can contribute to better alignment of interests and checks and balances, two areas of criticism levelled against single-party fiduciary providers. When asked for which of the following services pension executives out-source to a consultant, the largest group (24%) say strategic advice, followed by 18% for asset manager selection, 12% for monitoring and reporting, 11% for benchmark selection, 7% for risk budgeting, 7% for portfolio construction and 5% for custodial services. Sixteen percent did not select any of the seven listed options.                     

source: bfinance

Fiduciary management has its origins in the Netherlands. Dr. Anton van Nunen is largely credited with developing the concept in 2001. Today, it is known by a number of other names which can be as varied as implemented consulting, Total Governance Solution (TIGS) or solvency management. Fiduciary management grew out of certain limitations in modern portfolio theory. “One major concern was that the fleet of managers used by pension funds had often grown too large and unwieldy,” notes van Nunen in his book, Fiduciary Management, Blueprint for Pension Fund Excellence (2007). “A more basic concern was that the modern portfolio theory paradigm meant that nobody really had broad responsibility. The division of labour among plan sponsors, consultants and investment managers meant that everybody had a narrow range of interests.” Whether fiduciary management addresses these shortcomings is far from conclusive. Among respondents who say they may outsource to a fiduciary provider, the CIO of an Italian pension fund says: “We do not have a proper structure internally and it may make sense for us to outsource to a fiduciary in the future.”

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