UK - The Royal Borough of Windsor and Maidenhead has implemented a new due diligence policy relating to the external managers of the £1.05bn (€1.19bn) Berkshire pension fund, in response to "a number of scandals during 2008".

In a document presented at the latest meeting of the pension fund advisory panel, held last week, the council claimed the investment scandals involving Bernard Madoff and Sir Allen Stanford had "highlighted the need for those charged with the stewardship of funds to undertake due diligence on managers they appoint to manage assets on their behalf".

 A new policy statement, "designed to be a public commitment to the minimum due diligence officers will undertake on external fund managers on behalf of the Royal Borough", was adopted by the panel and will be published on its website to reassure stakeholders that the council "takes its responsibilities for safe stewardship of the fund seriously".

Under the terms of the policy specified officers - the head of finance, pension fund manager or investment manager - would visit the offices of any manager appointed to the pension fund to examine back-office operations and check price feeds and reconciliations, although this would be carried out on an ongoing basis and not just at the time of the appointment. 

When looking at UK-based managers, the eight minimum due diligence standards to be met include:

At least annual visits to offices for meetings with fund managers; Visit portfolio managers desks; Ask for demonstrations of information systems and dealing systems; Meet back-office team; Obtain reports on internal controls on an annual basis; Visit in-house dealers; Check other professional advisers when using a 'fund' structure, and Do financial checks before awardng the contract.

The same actions would be required when assessing overseas managers although a visit to the overseas office would need to be made within six months of the appointment.

If the officers are at any time dissatisfied with any aspect of the due diligence on a fund manager they will report to the panel's investment working group with an "appropriate recommendation", which can include termination of the contract or withdrawal of an investment.

The report said: "The level of due diligence required will vary from manager to manager but even simple due diligence, such as visiting a fund manager's office, would have prevented many investors from getting involved with Madoff".

At the meeting of the advisory panel last week, it was argued no other local government pension scheme has a similar policy in place, while feedback from managers already notified of the proposed policy had been positive.

The adoption of the due diligence policy follows the recent appointment of 10 new managers as part of a diversification process, although the council added "due diligence played a major part in the appointment of the external managers for the seven mandates the Royal Borough advertised in 2008". (See earlier IPE article: Berkshire halves equity assets under new strategy)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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