IPE: Asset managers must 'rediscover' meaning of fiduciary duty

31 March 2011

FairPensions published a report into fiduciary duties of both pension trustees and those who manage scheme assets, arguing that many now only view a fiduciary’s duty as guaranteeing returns.

In 'Protecting our best interests – Rediscovering fiduciary obligation', it also argued that investors should be aware of agency capitalism at a time when ever more complex financial tools mean asset owners need to rely on external investment advice.

It cited research showing that in the five years to 2007, payments from schemes to intermediaries rose by 50%, while real annual returns averaged 1.1%, meaning more of the real returns were being captured by third parties, rather than being returned to the fund. Christine Berry, author of the report, said that in light of this shift towards ever more external managers, it was important to stress that conflicts of interest should be avoided. "Trustees and trustee boards are usually very aware of the potential for conflicts of interest to arise and that it needs to be managed," she said.

“Where that isn't necessarily the case is extending to the investment team, to the agents who act on their behalf – the asset managers and investment consultants." Berry added that bringing the meaning of fiduciary back from only referring to maximising returns was also important if the above goal was to be achieved, and that there was a "need to rediscover" the fundamental aspects of the duty.

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