UK- The e11bn British Coal Staff Superannuation Scheme is in discussions with two of its managers- Schroder Investment Management and Edinburgh Fund Management- as to how they can cut transaction costs after it emerged that Goldman Sachs Asset Management saved the scheme e775,000.

Joint transaction cost analysis by the scheme and Goldman Sachs, manager of more than £9bn of the fund’s assets, have made the savings over the last four years. Goldman Sachs has been comparing transaction data from the fund with figures from Elkins/McSherry in an attempt to minimise brokerage costs.

David Morgan, chief executive at the coal fund, says understanding transaction costs is a key component of its work. “Commission for the Scheme amounts to some £10 million in a year and the potential timing and opportunity costs and market impact are significantly greater than that. A budget of that order merits significant management time as this saving alone demonstrates. These costs are incurred on our behalf by our managers and our interests are aligned by open and transparent dialogue.

“Paul Myners was right to draw attention to commission costs in his report but you really have to manage transactions costs as a whole and not just commissions in isolation,” he says.

Morgan says the coal fund’s objective of maximising performance does not necessarily mean minimising transaction costs. Sometimes buying stock in a rising market or offloading it in a bear market supersedes concerns about transaction costs.

“It’s the net return that matters. That calls for expertise in trading and a close partnership between the portfolio manager and the trading desk. There may be no single agreed method for analysing these costs but it’s more important to start somewhere and improve net return today than to wait for a consensus to emerge,” he says.

The coal scheme has yet to open talks with its fourth manager Fidelity because, says Morgan, “they approach their trading cost analysis in a very different way.”

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