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.

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