The long-awaited Myners report on UK institutional investment, commissioned by Chancellor of the Exchequer Gordon Brown, has called for greater professionalisation of pension fund trustees to ensure they are ‘familiar’ with investment issues and can manage scheme assets in a 'prudent' manner.

And the report, produced by Paul Myners, chairman of UK investment house Gartmore, also proposes trustees be paid for their services - in recognition of the importance of their work – investing assets, which, he notes, represent upwards of £800bn for the pensions of around 12m employees in the UK.

Trustees, he points out, while legally responsible for the funds, are in practice unable to take major decisions or challenge advice effectively due to their lack of expertise.
A belief that past trends would support future investment, he opines, has led to prejudice towards asset classes such as private equity, noting:
“For many pension funds private equity has been the lost asset class.”

Myners also lambasts pension funds for overly investing according to peer group benchmarks:
“ This is inextricably linked to the pervasive herd-like behaviour that has been criticised in the UK and can be particularly prevalent in local authority pension funds.

However, he stops short of pushing for compulsory training and professional exams for trustees.

The increased sophistication of trustees, Myners says, would incorporate the drawing up of a set of principles of investment decision making for which trustees would be expected to have the necessary skills, information and resources to implement effectively.

This, he says, should involve consideration of all asset classes

“ Trustees should be more business like in the way they work, using forward planning and having clearer objectives for the work they do,” says Myners.

However, he eschews regulation in favour of a Cadbury-style approach to his recommendations.
This he says means that institutions will not be required to comply with the new investment principles, but will be obliged to say why and where they do not comply, should this be the case.

Quoting from a survey of around 200 UK trustees, Myners compounds his findings by revealing that 62% possess no investment qualifications, while 69% received two or fewer days training when they first became trustees.
Forty-nine per cent say they spend three hours or less preparing for investment issues before a meeting and 77% say the pension fund has no in-house professionals to help them in their decision-making.

Myners says the government will now consult on the details of the principles, but argues that the ideal outcome would be for the industry to adopt the principles voluntarily.
He warns though that should there be no change in the behaviour of UK pension funds then the report is clear that the government should legislate accordingly – with a review posited for two years time.

The UK National Association of Pension Funds (NAPF) has welcomed Myners’ findings. Alan Pickering, NAPF chairman, comments: "The Report is welcome not just for what it says but for what it leaves unsaid. We are delighted that a prescriptive approach is not being recommended and that the temptation to pursue a box ticking mentality for the investment process has been rejected. There is no viable alternative to a thoughtful and informed approach to pension fund investment. The recommendations are challenging. “We will respond positively to that challenge and play our part in shaping those principles, which may ultimately become part of the Myners’ code".

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