Poor decisions cost UK local pensions £17bn (FTfm)

May 27, 2014 | Posted in In the news | By

“Improving investment governance via the formal measurement of the performance of investment decisions and advice has the potential to yield significant results,” said Mr Pedersen.

To read the full article from FTfm please click here: http://www.ft.com/cms/s/0/e0c8f83c-db8d-11e3-a460-00144feabdc0.html#axzz32um5zJD4

Positive link between performance and governance (Engaged Investor)

May 21, 2014 | Posted in In the news | By

There is a positive link between performance and governance for local government pension schemes, according to research conducted by Clerus.

To read the full article from Engaged Investor please click here: http://www.engagedinvestor.co.uk/positive-link-between-performance-and-governance/1474072.article

The Hidden Cost of Poor Advice: A review of Investment Decision-Making and Governance in Local Government Pension Schemes (“LGPS”) – Part 1

May 13, 2014 | Posted in The Hidden Cost of Poor Advice | By

£17 billion ‘hidden’ cost of poor investment decision-making and advice to Local Government Pension Funds.

CLERUS has just released the first in a series of research reports on governance and investment decision-making in UK Pensions Funds. The first report focuses on Local Government Pension Schemes (“LGPS”).

To Read the full report click here: The Hidden Cost of Poor Advice – A Review of Investment Decision-Making and Governance in LGPS – Part 1

The Independent research conducted by CLERUS reveals the majority of local government pension schemes do not comply with key Myners Principles on good governance and the data indicates that this basic lack of compliance and transparency can explain an annual shortfall versus LGPS benchmarks and targets of more than £2 billion per annum or £17 billion in net present value over 10 years. In addition the report shows that Schemes with good governance against the Myners Principles on Performance Measurement perform at least 0.5% per annum better over 5 and 10 years than those with poor governance.

“Improving investment governance via the formal measurement of the performance of investment decisions and advice has the potential to yield significant results for institutional investors” said Henrik Pedersen, Managing Partner & Co-Founder of CLERUS

Report Summary:

  • Significant Governance and Investment Decision-Making deficit in LGPS totalling £2.1 billion per annum or net present value of £17.5 billion over 10 years
  • More than 90% of LGPS does not substantially comply with Myners’ Principle of Performance measurement of investment advisors and own investment decision-making
  • Schemes with good governance against the Myners Principles on Performance Measurement perform at least 0.5% per annum better over 5 and 10 years than those with poor governance
  • LGPS data shows that Schemes using Investment Consultants on average perform more than 0.4% per annum worse than those who don’t

Conclusion:

  • Current situation where local pension schemes and advisors are left to ‘mark their own homework’ with respect to investment performance and decision-making is not working
  • Proper implementation of Myners Principles has the potential to unlock significant performance improvements of at least 0.5% per annum for the average scheme
  • Current Proposals to ‘force’ Local Government Pension Plans into passive management addresses the symptoms rather than being a cure for poor governance
  • It is the quality of governance and decision-making that drives performance differences and the Schemes with good governance have on average outperformed the Schemes with poor governance

The report highlights the urgent need to implement the good governance recommendations outlined in the Myners Report, including the formal performance measurement of trustees’ investment decision-making and of the recommendations made by their investment advisors.


CLERUS was founded to offer independent senior investment management, governance and decision-making expertise to Pension Funds or other asset owners looking to evaluate the efficiency of their current investment management process.

CLERUS co-founders Henrik Pedersen, MBA and Richard Rothwell, FSIP, ASIP are both seasoned financial experts with many years of applied institutional investment experience, which they recognise could be of value to those pension-fund investment-decision makers, who might lack the applied investment experience to question the investment advice they receive.

CLERUS governance review process has been developed and successfully deployed to evaluate and improve the performance of investment decisions within leading investment firms and over many years.

Oxford Paper recommends that pension funds review the performance of their investment consultants

January 13, 2014 | Posted in The Hidden Cost of Poor Advice | By

Oxford Paper recommends that pension funds put their investment consultants under the same scrutiny as they themselves require from the investment managers that they analyse and recommend

A recent research paper from Said Business School, University of Oxford analyse the impact of investment consultants recommendations on US plan sponsor’s performance using 13 years of survey data provided by Greenwich Associates which has conducted surveys of investment consultants since 1988. The data analysed reflect the recommendations of US equity product by investment consultants for the period 1999-2011 during which period an average of 29 investment consultants answered the survey each year, reflecting a 91% share of the US consulting market. The recommendations used are the aggregated recommendations of all the consultants surveyed as investment consultants do not publicly disclose their own past recommendations to allow analysis of recommendations by individual consultants.

The findings of the study is interesting and suggests that a main impact of the recommendations is to drive significant fund flows into the recommended managers and that these managers then tend to underperform the wider market of available (equity) managers in which to invest.

The conclusion of the report is aligned with the recommendations of the Myners Report and discuss in detail the inconsistency that while fund managers testify to the rigor with which investment consultants scrutinize their performance and measure the effectiveness of their decisions, investment consultants themselves are shy of disclosing the sort of information which would allow pension funds, or any outsider, to measure their own performance. In an article in Financial Times on September 22, 2013 Mr Jones, one of the authors of the report highlight that “Since consultants do not disclose their individual recommendations, pension funds are allocating assets on advice the quality of which is impossible to judge” and contrasted the situation with the consultants scrutiny of fund managers.

If you want to know how CLERUS can help you measure the performance of your advisors and enable you to state full compliance with the Myners principle 4 on Performance Measurement please give us a call to discuss.

If you want to read the full research paper referred to herein please click here ssrn.com/abstract=2327042