UK – The National Association of Pension Funds (NAPF) has issued a response to the recent Myners report on institutional investment, seeking changes to make the report “more workable”.

On one of the most controversial points to have been raised by Myners – the issue of cost transparency for external research, information and transaction fees, the association says that while it supports Myners in principle, the reality may have serious unintended consequences.
The NAPF argues that by including such costs in direct asset management fees, funds may actually suffer from poorer disclosure and be hit with higher overall costs.

Peter Thompson, incoming NAPF chairman, comments: “The NAPF believes, therefore, that independent academic research should be conducted into the whole area of execution costs and calls on the government to arrange such a study before it commits to the draft principle.
“ A set of principles which forced a significant minority of schemes to opt out of compliance because of higher cost and administrative burdens would devalue the code and be counter productive.”

The NAPF’s recommendations to the Treasury, which is currently considering the report to the government by Paul Myners, chairman of UK fund management house Gartmore, cover three main areas; the payment of trustees, effective decision making and commissions and execution costs.

On trustee payment, which Myners recommends in his report but has since qualified as an option to consider, the NAPF counters that such remuneration could add to the legal burden on trustees.
It warns: “Payment to lay trustees, over and above their normal compensation, would place a greater legal responsibility on them than at present.”
The added burden, says the NAPF, would lead to a reluctance amongst scheme members to stand as member nominated trustees, while at the same time giving rise to a class of ‘professional trustees’, which it says may not be in the best interest of schemes.
“ Adequate time off and support to carry out their duties is far more important than the level of pay, “ says the submission.

The NAPF also questions Myners’ assertion that trustees have ‘sufficient expertise’ to take effective decisions on investment, arguing that such a definition will be hard to quantify.

On the issue of in-house investment support raised in the Myners report, the association also argues that for many smaller schemes this would not be a feasible approach.
“ While many larger schemes follow this approach, for smaller schemes, outsourcing this function may be the only cost-effective, practical approach. What is more important is that adequate support for trustee decision making exists,” says the NAPF.

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