Trustee warns asset managers against passing on regulatory costs

The CIO of the pension schemes for the Daily Mail General Trust (DMGT), a UK newspaper, has warned asset managers against passing on the costs incurred with the regulatory changes coming from Europe.

Mike Weston, who heads up the investments for the three defined benefit (DB) schemes, with around £2bn (€2.4bn) in assets, warned managers in a speech about the cost of regulation.

Speaking at the National Association of Pension Funds (NAPF) Investment Conference, Weston said he would not accept any cost increase from managers due to the European Market Infrastructure Regulation (EMIR).

“For existing mandates,” he said, “asset managers should not even think about passing on those costs to us. They have to absorb it into margins.

“The question to ask asset managers is what benefits you are going to get from the extra costs. If they can explain how extra costs are going to benefit the scheme, then great – if not, it is just an extra cost of them doing business.”

Weston was relaxed about the impact of new regulations and said additional “sensible” regulations should benefit pension schemes in the long run.

This echoed comments by Chris Hitchen, a trustee at RPMI, a railways pension scheme, who in a separate conference session said regulations such as the financial transaction tax (FTT) could benefit pension schemes with long-term investment interests by discouraging high-frequency trading.

“By lobbying with the NAPF, we can ensure additional regulations that are sensible,” Weston said.

“If they genuinely make the financial system safer and more transparent, then they will be worth it for pension schemes. Effectively, the risk costs will come out of the market.”

James Walsh, senior policy adviser on European regulations for the lobby group, conceded Hitchen and Weston’s point, but questioned the FTT’s appropriateness.

“Maybe it would be good to have some regulatory solution to high-frequency trading,” he said.

“There are questions as to whether the FTT is the right way to do that, but clearly there may be a case for addressing market behaviour.”

This came after the chair of the NAPF, Ruston Smith, accused Brussels of only acting for the few, and not the majority, with its legislative agenda for European pension schemes.

Weston also said the DMGT pension schemes were not “overly preparing” for the impact of EMIR or the Alternative Investment Fund Managers Directive (AIFMD).

Because the scheme has a relatively basic and simplified asset allocation, he said, regulations coming out of Brussels have not caused him too much trouble.

“We will be speaking to asset managers,” he said, “not really about current mandates, but what might come down the track, and whether there will be an impact.

“At a higher level, we will be speaking to our investment consultants about whether we will shift our asset allocation, and what potential impact we should be aware of.”