UK – Pension funds can no longer "be complacent about foreign exchange costs" says fund secretary at the three billion pound (4.55 billion euro) London Regional Transport pension fund, Chris Angell.
Says Angell: "Some pension funds might be inclined to say that paying, for example, a couple of hundred thousand pounds in unnecessary forex transaction costs is only small change and hardly worth bothering about. However, speaking for my own fund I know that many of our members and particularly trustees from the trade unions would not at all see the matter in that light. Frankly, I can understand their attitude, which is that these are enormous sums of money, and need proper management."
The LRT fund has managed to cut its foreign exchange transaction costs by 50%, using a methodology developed by foreign currency specialist, Record Currency Management (RCM).
RCM and the LRT fund have been working together for the past two years. RCM has been developing a Currency Audit product to help LRT understand its forex exposures and exchange rates. The manager offers an on-going monitoring service enabling major institutional investors - particularly pension funds – to assess the competitiveness of the foreign exchange transactions conducted on their behalf by their custodians or investment managers. It focuses on comparing the rates actually achieved and delivered to the pension fund with historic exchange rate data from the firm’s database.
"I think trustees are entitled to wonder, under the circumstances, whether a custodian or fund manager is really going to be motivated to give funds the very best deal they can on a consistent basis. Whether funds ask their custodians or their managers to execute their currency transactions, I believe pension schemes have a clear duty to their trustees to be absolutely certain about the forex transaction costs they are paying," adds Angell.
The issue of foreign exchange costs was brought up in a report by Paul Myners delivered to the UK government in 2001. The report urged greater awareness of transaction costs.
Record was established in 1983 by Neil Record, and has conducted currency audits for clients such as the BBC, Railpen, and Aberdeen City Council. Overall, more than 40,000 forex trades relating to pension fund investments in excess of 20 billion pounds (30.32 billion euros) have now been audited.
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