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August 2016

The Monster Editi n

The Transarency Task Force is the campaigning community dedicated to driving up the levels of transparency in financial services, right around the world. This month’s contributors include: Gayle Schumacher Former MD, Coutts

Con Keating Head of Research, Brighton Rock Group

Richard Field Director, Institute for Financial Transparency

JB Beckett UK Rep, APFI and Author of #NewFundOrder

The official publication of The Transparency Task Force. FREE to members of the Transparency Task Force, membership of which is also FREE


CONTENTS: | AUGUST 2016

THE OFFICIAL PUBLICATION OF

Andy Agathangelou Founding Chair, The Transparency Task Force “A Monster of a Mistake by the Investment Association?” Page 3

Recommended reading Page 54

Con Keating Head of Research, Brighton Rock Group “Monkeys Redundant - Report Shock” Page 8

All you need to know about: The Directory of Pro-Transparency Organisations Page 57

Con Keating Head of Research, Brighton Rock Group “Sensory Deprivation” Page 12

Con Keating Head of Research, Brighton Rock Group “Portfolio Holding Periods: Follow The Cash” Page 16

Richard Field Director, Institue for Financial Transparency “Asset Managers as a barrier to Transparency” Page 22

Gayle Schumacher Former MD, Global Head of Investment Office Coutts “A plea for the Retail Investor” Page 28

JB Beckett UK Representative, Association of Professional Fund Investors, and author of #NewFundOrder “AM War Games: Coefficients of Inefficiency” Page 32

All you need to know about: The Transparency Task Force Teams

SPECIAL THANKS TO CON KEATING FOR SUBMITTING 3 ARTICLES TO THIS MONTH’S EDITION! GET IN TOUCH IF YOU WOULD LIKE TO SUBMIT AN ARTICLE IN A FUTURE EDITION OF THE TRANSPARENCY TIMES.

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All you need to know about: Transparency Statements Page 49

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COMMENT FROM THE EDITOR

A Monster of a Mistake by the Investment Association? by Andy AgAthAngelou, Founding ChAir | the trAnspArenCy tAsk ForCe Andy Agathangelou, Founding Chair of the Transparency Task Force comments on the Investment Association’s recent press release about hidden fund fees being ‘The Loch Ness Monster of Investments?”: On 9th August the Investment Association (The trade body for the UK’s asset management industry) put out a press release. If you’ve not seen the press release you can access it through the media page of the IA’s website. The IA’s research and the tone of their press release has caused such an adverse raction amongst

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pro-transparency campaigners and commentators that this edition of the Transparency Times is largely dedicated to responding to it. I would normally welcome any research into the topic of hidden costs and charges but I’m concerned that the IA have undermined their own work by making such a churlish reference to the Loch Ness Monster. I hope nobody is offended by the IA’s comments; be they Scottish people fed up with having their folklore used in this way, or the many consumer-centric-citizens working to expose the problem of hidden costs in invest-

ments. In their press release the IA comments:

“The report finds zero evidence that funds’ returns are affected by hidden fees lurking within, suggesting that ‘hidden fund fees’ may in reality be the ‘Loch Ness Monster of investments’.” Hidden costs are actually a very serious matter even if that’s not what the IA think, for four main reasons: 1. Hidden costs undermine social justice, in that they prevent the consumer (or those representing the interests of the consumer such as pension scheme trustees) from being able to identify and obtain value for money. 2. Hidden costs substantially reduce net returns,

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particularly for pension savers. The long-term nature of pensions saving means that the net value of the fund being accumulated is hyper-sensitive to fees; far more sensitive than most people imagine. And in our low inflation/low returns era that’s extremely important as costs can now consume such a high proportion of potential net returns. 3. Hidden costs prevent the market working efficiently because knowledge of true cost is a pre-requisite for the ‘invisible hand’ of market forces being able to work its magic. In market efficiency terms the pensions/investment sector is fundamentally flawed at best. 4. Hidden costs prevent those representing pension savers doing their job properly. In the USA pension scheme trustees are being successfully litigated

against by their scheme members for failing to protect their interests in relation to cost management. Is there a risk that similar legal activity will start to occur in the UK? I think there is.

The stark reality is that opacity is a festering sore on the face of financial services and the investment world is definitely a part of the problem. There’s nothing new about this; the opacity problem goes right back to the 1920’s, perhaps even longer, as explained by Richard Field, Director of the Institute for Financial Transparency in last month’s edition of the Transparenmcy Times in his article ‘a brief history of transparency’. Many individuals and organ-

isations are trying hard to fix the problem. For example, the Transparency Task Force’s Costs and Disclosure Team has over 20 experienced people working together on a completely voluntary basis to identify and categorize all the costs an investor may encounter; explicit and implicit. They are volunteering their time to try and get a better deal for the consumer and to try to help the sector regain trustworthiness. Trustworthiness is important for such a maligned sector and we know there is a close correlation between transparency and trustworthiness. I just don’t think the IA press release endears them to the market at all and given the avalanche of adverse publicity they had when Daniel Godfrey’s ceased to be their Chief Executive (when he was trying to get the IA to put the interests of the consumer first) you’d think the IA would have learned a few lessons about how to avoid adverse publicity by now. I’m now not so sure they have; but I am sure that if I was a fee-paying member of the IA I’d demand to know who signed off that press release, it’s just so churlish and needlessly provocative, in my opinion. Are the IA actually suggesting they don’t believe there’s an opacity problem at all and that those who do are fools? If that’s what they think then do they think Shirin Taghizadeh, Head of Pension Charges at the Department for Work and Pensions is a fool? Shirin leads the DWP’s work in

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relation to Section 44 of the Pensions Act 2014, under which new regulations must be brought in during this parliament to help deal with the transaction costs in pensions problem. Do the IA think Becky Young, who is leading the Financial Conduct Authority Asset Management Market Study looking into the systemic failings of the Asset Management Industry, part of which is to do with hidden costs, is a fool? Do they think that Andrew Warwick-Thomson and his colleagues at the Pensions Regulator who have been working extremely hard to produce a new DC Code; part of which is all about how trustees and IGCs should deal with the problem of hidden costs and charges, is a fool? Do they think Tom Tugendhat MBE MP, who is campaigning in his own right for the consumer to be better protected from the scourge of hidden costs in investments, is a fool? Maybe the IA think the entire Government, all the Lords and MPs, the entire regulatory framework and all the consumer-centric citizens concerned about the opacity problem are all fools, looking for the ‘Loch Ness Monster’ as they have so churlishly and so deliberately likened the matter in their press release. Or maybe the IA even think they themselves are fools, having recently set up an Advisory Board (of which I’m a member) to help deal Edition #4

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with the need to disclose costs better, including hidden costs? It’s hard to understand where the IA are on this whole issue. Not only do they seem to be in a state of cognitive dissonance in relation to the mountain of academically robust research that has been carried out on the issue; they also now seem to be contradicting themselves! I’m not sure what the motivation was behind the IA’s press release but I do hope the IA’s churlish comments will discourage neither the rule-makers from making new rules or the consumer-centric citizens campaigning for change. We desperately need to cut through the obfuscation and opacity that surrounds costs in the investment chain and I don’t think the IA’s press release helps at all. The sector needs leadership from people like the Bank of England’s Mark Carney who recently spoke about the need for greater transparency and for “ruthless truth-telling” as he put it. We need leadership from organisations like The 300 Club, whose members are progressively-minded, future-orientated investment professional in touch with reality, what the consumer wants and how market participants need to behave to regain trust. Are the IA so retrospectively-minded that they are in effect in a state of denial?

You can read Con Keating’s article that follows about his thoughts on the IA’s research. The points that follow are comments about the research methodology that was used: - The report seems to confuse analysis of returns from active management with cost management. The difference between the fund return and benchmark return is often referred to as the active management return (alpha). This can be gross or net of costs – helpful to know which; - The report does not give a methodology to determine gross of costs returns so it is consequently impossible to isolate out what costs are; - The report penalises those managers who might be good investors but poor cost managers by only showing net numbers; - The hypothesis that “one would expect that aggregate active fund management performance would represent the return of the index net of transaction costs and fees” ignores market participants besides the fund managers included in Fitz’s sample. These fund managers do not make up anywhere close to 100% of most markets so the hypothesis is fatally flawed; - The statement that “we would therefore expect that the sum of the ongoing

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charges and all explicit and implicit investment costs (expected shortfall) to be equal on average to the difference between the fund net return and the cost-free benchmark return (realised outcome)” suggests that active management generates a return of twice the costs (so that once these costs have been taken into account, then the net return is still greater than the benchmark by this amount again). We’re not sure how they arrive at this statement; - The statement that “if it were true, as some commentator’s state, that there are hidden fees which are multiples of disclosed costs, the impact ought to be reflected in the average net returns that funds deliver” is absolutely correct. The greater the fees, hidden or otherwise, the greater the impact on net returns (as gross returns don’t change but the deductions therefrom do); - The statement that “If implicit costs were causing a significant drag on fund

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returns relative to the benchmark, we would expect that the realised outcome ought to be worse than the expected shortfall” ignores the impact of active management. If the active managers are adding value, then the realised outcome will be better than the expected shortfall; and - The report does get one thing right when it states that “The data limitations on implicit costs mean that we cannot definitively isolate manager skill from transaction costs”. That is the crux of the matter and why the report is meaningless at best if not downright misleading. The key question about the research is perhaps “How complete is it?” That’s the obvious question because the two industry cost calculation methodologies mentioned are the Portfolio Turnover Rate (PTR) and the Ongoing Charges Figure (OCF) and both of these cost metrics may not actually be full and complete. If so the research might therefore be misleading to an investor who wants to know the “true cost of fund management” when comparing

differing investment fund products. In relation to the PTR, there are perhaps 10 different PTR methodologies being used by the market. Every transaction incurs a cost to the investor, not just half of the buy or sell transactions so what PTR calculation methodology has been used when producing the research? Are the real PTRs being under-reported? In relation to the OCF, it often fails to include all the implicit costs, custodian transaction costs, one-off costs and so on. In time we’ll forensically examine the research and the central question we’ll be asking is: How complete is it? But if the IA are convinced it is complete then perhaps the IA would be willing to stand by it and guarantee to pay compensation to any investor that ever has, or ever will, pay any kind of charge beyond what is disclosed in this research? So there’s the challenge to the IA – if the IA believes the research to be complete they can stand by it if they want and provide a written guarantee to any investor that ever has, or ever will pay any kind of charge (explicit or implicit) beyond what is fully accounted for in this research. I wonder if we’ll ever see such a guarantee from the IA. Maybe we’d see the Loch Ness Monster first…

The Transparency Times | www.transparencytaskforce.org | August 2016 | Edition #4


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ARTICLE: CON KEATING

MONKEYS REDUNDANT – REPORT SH

by Con keAting, heAd oF reseArCh | Brighton roCk gro The strapline to the press release of the latest Investment Association (IA) report “Hidden Fees: The Loch Ness Monster of Investments” was eye-catching and amusing. Having read the report several times, a painful process I would not recommend even to a devout masochist, I have to conclude that if the IA had been swallowed and lay, decomposing, in the belly of the beast, we would receive another press release from them announcing its capture, containment and domestication. I first studied undergraduate level statistics and probability theory in 1963, and formal training in econometrics followed in 1971. I have edited several text-books on these subjects written by academic friends and I have served, in august, honoured company, on the steering committee of the Financial Econometrics Research

Centre for many years. In the intervening years, I have read many hundreds of empirical financial studies and reports, perhaps even thousands. This report is by far the worst; so bad that it is offensive, insulting both our common-sense and intelligence.

The report has a veneer of transparency and rigour, but left me with over 30 questions. In a thirteen-page document, including four pages of cover, contents and blank space, that is a lot of questions. As many others have published similar concerns, I will raise only a few here. The sample dataset is odd, covering two full years and then just 11 months. What was the hurry – could it just have been to feed the report into and corrupt the FCA’s ongoing work on asset management, on which we expect a preliminary paper in September? With any piece of empirical work there are always choices and assumptions to be made, which introduce bias. Of the assumptions disclosed, all but one serves to present fund management performance in a positive light.

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HOCK

oup

The Investment Association has long, and rightly, criticised the use of the SEC algorithm for calculating portfolio turnover, and the much maligned Brussels bureaucracy concurred, writing their own, now-abandoned, standard; yet here it is, central to their report. As the lower of sales or purchases in a period divided by the average fund value, it is clearly the metric which will return the minimum turnover rate, and in this report, the lowest transaction costs estimate. In fact, transaction costs are incurred on both purchases and sales. It is irksome that we are repeatedly told that 1350 “equity fund accounts” are contained in the dataset, when there are in fact 387 funds in the first year, 504 in the second and 457 in the third period. This is, in other words, an unbalanced panel with a common maximum possible of 387 funds, and likely many fewer. We have no idea how many funds are actually included in the “UK All Companies” active and passive universes in any period. In any rigorous academic study, the distributions, or at Edition #4

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least their descriptive statistics would be disclosed. Such disclosure allows us to make our own judgement of appropriate measures of central tendency, but we are repeatedly treated to “bundled” measures, and even an average bundled ongoing charges figure. It would also allow us to consider the riskiness of these investments, but risk is a word entirely absent from this report. The aggregation taking place is between funds with a wide range of investment mandates, including FTSE 250 and AIM stocks, an inference drawn from their index presence in the final graphic of the report- but what purpose is there to showing those indexes for a different period from the data under investigation? There is a real problem with the benchmarks used as comparators in that these are presented without any description of their compilation. In 2012-13, the (simple average) active benchmark reported was 13.61% and the tracker 17.27%, a huge difference not present in any other period which simply demands explanation. The weighted average was slightly less extreme at 14.71% and 16.84%. Both are implausible. Bundling and averaging these different mandates simply serves to

confuse and possibly mislead; it would have been so much easier to interpret had the various FTSE and AIM mandates been left separate and compared with their usual (market cap weighted) benchmarks. The radical departure in this report from all other studies that I have seen is that it reports that active fund management adds materially to performance. It seems that active fund managers are very consistently able to add value across mandates – a further finding not reproduced anywhere else, in my experience. We are asked to believe that, in 213/14, the average active UK fund manager added 649 basis points relative to the simple average benchmark (555 basis points weighted). Quite apart from the significance of this one figure to the overall average quoted repeatedly, this level of gain is more commonly associated with highly leveraged hedge funds, even if rarely achieved by them. I was sufficiently taken with this that I spoke with friends in seven of the major fund management

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houses and asked how many of their funds had equalled or exceeded this, and these fund managers probably account for a plurality of the funds in this marketplace. The question was greeted with incredulity; as one said: “If those figures had been achieved, I would have blown the advertising budget sky-high!”. Of course, the returns cited cannot be chain-linked to produce a full period outcome, though we are treated to the three period average of the Fitz Partners dataset and the wider sector sample (whatever that is) – in one, active returns are 14.83% and in the other 17.17%, while tracker are 11.83% and 13.45%. This raises another question: what

statistical significance should we assign to any of the figures in this report? Moving specifically to hidden costs, at best, it is disingenuous to search public documents looking for them as this report perhaps did. Though surprisingly, stock lending revenue (simple average) is reported as zero in all periods. It is also perfectly possible to strip value from a fund by nefarious trading practices and other means. Contrary to their assertion that the published return of a fund will include all the explicit and implicit costs, and implicitly that we

should not trouble our little heads, there are both revenues that rightly belong to the fund which never make it there and payments that may be made through poor execution which simply reduce the headline return. Let us not forget that all costs and fees are a direct charge on alpha, a very serious business. As for the claims of significant benchmark relative added value, time will doubtless tell. In the meantime, I see that monkeys have again beaten hedge fund managers, as they have in every year since 2012. Regrettably, their retirement must be postponed yet again.

In a career spanning more than forty years, Con has worked as an infrastructure project financier, corporate advisor, investment manager and research analyst in Europe, Asia and the United States. Con’s career commenced as a graduate trainee with Hambros Bank in 1969 and included periods with Kleinwort Benson, First Boston, Banque Paribas and CIGNA, and was characterised by specialisation in quantitative modelling and analysis. This has varied from the financial modelling of infrastructure projects, to credit, insurance and securities pricing and encompassed pension projection and valuation. He has served on the boards of a number of educational and charitable foundations and as a trustee of several pension schemes. He is currently Head of Research for the nascent BrightonRock Group. Con has been a a member of the steering committee of the financial econometrics research centre at the University of Warwick and of the Societe Universitaire Europeene de Recherche en Finance. As a research fellow of the Finance Development Centre he published widely on the regulation of financial institutions and pension systems, and also developed new statistical tools for the analysis of financial data, such as Omega functions and metrics. From 1994 to 2001, Con was chairman of the committee on methods and measures of the European Federation of Financial Analysts Societies and currently is a member of their Market Structure Commission. Con has also served as an advisor and consultant to the OECDs private pensions committee and a number of other international institutions.

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ARTICLE: CON KEATING

SENSORY DEPRIVATION

by Con keAting, heAd oF reseArCh | Brighton roCk gro There are good reasons why we don’t ask or expect convicted criminals, the inmates of Belmarsh, Holloway or Strangeways to write our laws. Though they may be skilled and experienced in the commission of crimes, in general we do not seek their expert advice. Of course, there is the occasional exception, with Frank Abagnale particularly well-known. Here though, proven reform and remorse are preconditions, which contrasts with the recidivism that is far more common. Against this background, it is surprising that the Investment Association should be rushing ahead with its plans for an industry disclosure code. Could it be that they wish to preempt regulatory action by the FCA and extend the life of the immoral and unethical status quo? Secrecy and information asymmetry are the stock-intrade of the asset management industry, and its trade association has form in this regard. The defenestration of its former progressive CEO, Daniel Godfrey is a recent illustration, but there are longer-running examples. The Investment

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Association also played a major part in the creation of the Investor Forum, a body arising from the BIS Kay review, which operates in near total secrecy. Were it not for the harm to be done to consumer savings in the interim, it would be tempting to propose the introduction of a three-strike rule on Californian lines. This problem is by no means unique. In the author’s note prefacing her book, “Makers and Takers”, Rana Faroohar recounts an anecdote. In a meeting with a former US regulatory official, she shared the statistic that academic work showed that 93% of all the public

consultation on Dodd Frank was taken from the financial industry. She then asked why this had not been broader. The response from a befuddled official was: “Who else should we have taken them with?” The Investment Association again has form; their submission to the Kay review (Turnover Research Initial Findings) demonstrates sleight of hand worthy of Maskelyne. A rather timely OECD publication, “The Governance of Regulators: Being an Independent Regulator” should be on every FCA official’s reading list. My particular concern now

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oup lies with the involvement of the Transparency Taskforce (TTF) in the IA’s Advisory Board on charge and cost disclosure, where even the terms of reference are strictly private and confidential. I was involved in the creation of the TTF.

the IA’s own technical working parties?

Having seen, over many years, industry responses to valid analytic studies, academic and professional, that were obstructive and bullying, and even included the retention of Messrs Sue, Grabbit and Runne to add weight to their threats, it seemed time for action. All the more so when clients of the fund management industry were also reporting difficulty in obtaining basic information about their investments. It was obvious that an inclusive forum, a safe haven, where these matters could be openly discussed, without fear or favour, might help to improve the situation.

When setting up the TTF we were hopeful that, in the currently rapidly changing socio-political environment, it might a difference, and perhaps move the Overton window. Some five years or so ago, the Overton thesis was all the rage with right-wing US ‘shock-jock’ broadcasters. The thesis is, that at any time, there is only a limited range of ideas that are socially acceptable and these determine the politically feasible; the progression that follows from change-inducing ideas flows from unthinkable, to radical, then acceptable, sensible, popular, and finally becomes policy. Judging by the column inches in the trade and popular press, it does seem to have had some success in this, something the very existence of the IA Advisory Board would seem to confirm.

The argument has since been touted that the IA Board should operate in secrecy as this will allow submissions to be made without fear. But there I must ask the questions: who is it that these respondents might have to fear, and how can this be a relevant concern when the Board was tasked only with examination of the output of

However, there is now a governance problem arising from the participation of Andy Agathangelou as a representative of the TTF in this Advisory Board. The TTF was never conceived as a body which would endorse or promote particular solutions; it was envisaged as a body where solutions could be discussed and

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investigated openly, with their sponsors pursuing their commercial and other interests outside of it. These arrangements were fully discussed in early TTF meetings. The very idea that a group, put together to promote transparency in very broad terms, should participate in this Advisory Board under these terms is completely anathema. Whether this is just some nebulous guilt by association or the far more serious question of joint enterprise may be a matter of intent, but it is clear that it is a conflict which was better avoided, if reputation and trustworthiness were not to be tarnished. The existing Statement of Principles, which proved so controversial and which saw very few fund managers adopting it, already contains as article 5: “Make all costs and charges transparent and understandable”. If the observance of previous codes is any guide, the effectiveness of an IA sponsored code would, from the very start, be in serious doubt, with questions of compliance, verification and enforcement all open.

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Editor’s Comment: An excellent article but I’ll now pick up on the criticism in Con’s article about my being involved with the IA’s Advisory Board, by setting out my rationale for wanting to accept the Investment Association’s invitation to be on on the independent Costs Disclosure Advisory Board as I wish to set the matter straight on a number of fronts. Why be involved at all? In genaral terms I have always felt that the best way to try to make progress when trying to drive up the levels of transparency in financial services is through taking a collaborative, collegiate and cooperative approach and I still believe that to be the best approach overall. I have never felt it sensible to exclude the Investment Association from such dialogue and I have very deliberately looked to include the IA in our activities. They have presented at two of our Transparency Symposiums, had one article published in the Transparency Times and been represented at most if not all of our Costs & Charges Team’s meetings. Whilst completely understanding that there is an inherent tension between the desire for greater transparency and how opacity protects profit margins of the investment industry (‘turkeys don’t vote for Christmas’ etc.) my view is that the status quo is morally unjustified and commercially unsustainable. Apart from anything else, one would hope that the drivers of better technology, better consumer representation and better regulation will combine to lead to a more transparent state of affairs, particularly on costs and charges. Some of our community are driven by a ‘social justice’ perspective, some by a ‘market efficiency’ perspective and most (including myself) from a mixture of the two. My thoughts are that the main losers from greater transparency will be the ‘old model’ asset managers who are represented by the Investment Association. From a tactical point of view I would expect the IA to do all they can to maintain the status quo as well as they can for as long as they can; because that is in the commercial interests of their members and therefore the very raison d’etre of the IA. Call me cynical if you want but that’s how I see it. In February 2016 the IA put out a press release explaining that they were looking to develop a new costs disclosure code to cover just the asset management industry. That concerned me as I am completely unconvinced that the IA producing a cost disclosure code for just it’s part of the market (and the likely consequence i.e. other trade bodies producing a cost disclosure code for just their part of the market) will lead to anything other than a very problematic patchwork quilt of protocols. There would be unwanted complexity, unwanted duplication, unwanted gaps. It would be very difficult to operate and oversee. But most worryingly the market would be able to game the rules and morph costs from one part of the system to another; a big criticism of the ‘charge cap’ that isn’t really a charge cap at all. Back in March The Transparency Task Force met with the IA to attempt to persuade them to not ‘do its own thing’ on cost disclosure and to instead work with a broad range of market parrticipansts including the TTF to create a comprehensive solution for all the market. Unfortunately the IA decided to continue with the development of their own costs disclosure. They invited the TTF to be on their Advisory Board. Given the reality that their Advisory Board was happenning anyway I saw being involved with it an opportunity to campaign for greater transparency and for consumers’ interests to be better protected; this is exactly in line with what the TTF is all about and exactly why I created the TTF in the first place. That’s why I decided to be involved.

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To me it is obvious that there is far more chance to influence developments by being an active participant ‘at the table’ rather than being a passive observer. My view hasn’t changed at all - in fact having experienced the way the Advisory Board works I’m even more convinced now that TTF needs to be involved. Some believe TTF should have nothing to do with the IA’s AB whatsoever. I don’t believe that’s right at all. As the IA is the trade body of asset managers in the UK, ‘love them or hate them’ they exist and are a significant stakeholder. I understand fully that their ideal outcomes are probably opposite to ours (‘turkeys don’t vote for Christmas’ etc). It remains perfectly clear to me that more good can be done by being an active participant than being completely detached, especially as I can contribute to the debate, properly scrutinise and witness the proceedings and help ensure due process is followed. To set the record straight on matters that have arisen in the public domain: Have I tried to conceal my involvement? Not at all, it’s a very positive thing for our campaigning community to be involved with, as far as I’m concerned. Am I being paid anything for being involved? No, not even expenses. It has taken up a considerable amount of my time for no reward whatsoever, other than the potential for my involvement to be good for the overall cause of driving up the levels of transparency in financial services, which is what I set the TTF up for in the first place and therefore is adequate motivation for me to want to do it. Am I now ‘a servant of the IA’? No, certainly not. Was I told meetings were confidential before agreeing to be involved? No. Do I want the meetings to be held on a confidential basis ? Not at all, I feel very strongly that they shouldn’t be, and I was not in any way consulted on the decision that they were to be. Am I campaigning for the Terms of Reference and Minutes to be published? Yes Am I keen for the IA’s new draft Disclosure Code to be part of the regulatory framework? No, it makes more sense for the DWP/FCA/TPR to properly regulate for disclosure across the market. A ‘patchwork quilt of protocols’ wouldn’t work properly at all, in my view; it would just serve suppliers. Has the issue caused a ‘rift’ within the TTF? I geuss that depends on how you define a rift. 2 individuals are no longer involved with TTF at all and 2 do not want to be involved with what I’m doing on the Advisory Board; that’s fair enough. As previously stated, if all members of the TTF left this community I’d carry on. I believe in what I am doing, why I’m doing it and how I am trying to do it, and if others want to help that’s great, and really appreciated. Thank you, particularly those that have been wonderfully supportive in recent weeks. If you have any comments or questions on any of this please feel free to get in touch. andy.agathangelou@transparencytaskforce.org +44 (0) 7501 460308

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ARTICLE: CON KEATING

PORTFOLIO HOLDING PERIODS: FOLL

by Con keAting, heAd oF reseArCh | Brighton roCk gro For many years there has been controversy over the length of time that investments are held in practice. This is part of the short-termism debate, where different metrics may indicate a rapid decline in holding periods (exchange turnover) or no material change (stamp duty). This note will explore and advance a method, based upon portfolio turnover, for the accurate evaluation of portfolio holding periods. It operates in accord with the old financial analysts’ heuristic of ‘following the cash’. There is some confusion surrounding portfolio turnover rate statistics arising from their different potential uses. There are two principle uses for these statistics– transaction cost and fee estimation and holding period evaluation. These different uses require different formulations of the algorithms for their calculation. Many of the problems evident in existing methods stem from attempts to shoehorn both uses into a single algorithm; there are a number of simple algorithms specified by regulators for turnover estimation but none of these is fit for the purpose

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of calculating a holding period, and many not even for transaction cost analysis. For transaction cost and fee estimation, it is necessary to consider all transactions, both purchases and sales, since all bear some costs. This means that a portfolio where all securities have been sold and replaced within a period will have a portfolio turnover rate of 200%. For whatever reason, the Investment Association is resistant to this feature of transaction metrics. As there is a huge literature

on transaction cost and fee estimation, we will consider here only the use of portfolio turnover figures in estimation of portfolio holding periods. The method proposed will be single period; a money rather than time weighted approach. There are, of course, two dimensions to the holding period estimator, the amounts held for investment, which we will refer to a cash leverage ratio, and the volume of securities (or other instruments) sold within the period. The method calculates the turnover of investments held within a fund and adjusts this figure for the cash leverage of these investments to produce

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LOW THE CASH

oup a turnover figure for the fund.

also requires calculation.

In order to avoid the complications of seasonality effects in trading activity and dividend and coupon payments that are evident in market activity, the preferred estimation period is one year. Aggregation or extension to multiple periods would be a simple linear process.

While we advocate a method based upon portfolio sales, there are obviously other methods by which the holding period may be estimated. It may be done using purchases, but this method is less intuitive and more convoluted than the proposed method. It could also be done by looking at the numbers of securities held for specified periods or the values of these securities. As we shall show later these methods can be extremely misleading.

Many of the existing algorithms utilise the average fund value over the period as their denominator; We believe that the start of period value (or initial value) is superior. The average value may vary due to investment market conditions, contributions or redemptions and manager behaviour, and

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This approach was taken in one of the Investment Association submissions to the Kay review. They

note that a (random) sample fund which had a UCITs turnover of “slightly over 100%” in fact held 75% of the same companies after a year and that these represented an “average of 82% of the holding by market value.” The submission also reports that “this drops to 56% of companies held continuously for two years, but accounts for 68% by value.” The submission also states the UCITs turnover metric value means that the portfolio turns over completely every two years.

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This is true but that does not mean that all of the holdings are sold. The figures quoted above, and others tabulated in that submission, indicate that there is a steady or stable process whereby 25% of initial holdings are entirely sold each year – technically this is a first order Markov process. The process in value terms is also stable at around 18% p.a. The problems with these analyses are manifold. The binary presence or absence does not consider the relative weights of these holdings. Given that the most common management technique for equities is to vary the weighting in a holding, accounting for at least half of all activity, this is a major failing. By way of pathological illustration, we might create a portfolio with, say, 100 equally weighted securities. Now suppose that we retain just one tenth of the holdings in 99 of these securities, placing the entire sales proceeds in the one other security. The end period reported statistics would be

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that we still hold 100% of the companies in which we initially invested and that these companies account for 100% of the fund value. The Proposed Method This note considers portfolio turnover, measured as sales within a period, as a measure of the holding term of the fund. It is concerned principally with the holding period of the fund or mandate rather than the investment portfolio, which may differ from the holding period of the fund due to cash holdings. We shall consider this calculation in increasing complexity of portfolio structure and management technique. Beginning with a fund which is simply a set of holdings, with no cash and therefore fully invested, at both the beginning and the end of the measurement period, the relevant measure is the total value of sales as a proportion of the initial fund value. A fund which turns over or has sales of twenty percent of its initial value within a one-year period may be considered to have a

five-year holding period. Now, if the sales are made for cash and held in cash the situation is clearly different from that where the sales proceeds are re-invested in other securities, as the amount of the invested funds is different. The cash-holding portfolio is partly de-levered and the turnover figure needs to reflect this. While there may be an argument for producing two numbers, cash leverage and sales proportion, we prefer to report a single figure for the holding period turnover rate. A fund which has turned over twenty percent of its initial value with this being held in cash has a true rate of twenty-five percent (20/.80 = 25%) and a four year holding period. The direct reinvestment situation remains at five years. Next we need to consider the position where the initial position consists of cash, as it may be with a new mandate. If this is fully invested and there are no sales, the holding period is long-term if mathematically indeterminate (technically the investment is for the terms of the instruments held, which may be forever in the case of equity). Of course, if such portfolios existed to any meaningful extent the debate on short-termism would not have occurred. When only part of the award

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is invested, say fifty percent, and again there are no sales, the holding period is clearly only half of that long-term of the invested portion, though still indeterminate. Turning to the effects of dividends or other cash flows, there are again distinctions to be made. If distributed, this is considered a sale and the turnover rate increases and the holding period declines. The logic is simply that this distribution shortens the holding period of the investment. When the dividend is received and held as cash, then the portfolio value and cash held must be increased to reflect this inflow. A worked illustration will aid here: suppose we have a fund with 15% held in cash and sales of 20% of the investments held, then the turnover rate is 23.52% (20/0.85) but when we add the dividend, say 7%, the calculation becomes more complex. The 85% proportion of the fund held as investments is now 79.44% of the fund (.85/1.07), so that Edition #4

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the turnover rate becomes 25.18%, and holding period a little under four years. The final situation to consider is that where the dividend is retained and invested. The value of the fund is increased along with the amount of the fund invested, and the calculation becomes: investments are now 85.98% of the fund ((85+7)/1.07) and with sales fixed as previously, the turnover rate becomes 23.26%. Other investment cash flows may be considered in similar fashion, for example, bond coupons. The maturity pro-

ceeds of a bond held are considered as a sale, and though there should be no adjustment of the portfolio value, the use of this cash is again a concern. It is worth distinguishing between activity undertaken at the discretion of the fund manager and that at the discretion of investors. This includes matters of investment style selection; the turnover and holding period associated with a passive index fund, which arise from rebalancing, are a matter of choice by the investor. Investor discretion-

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ary actions take the form of new contributions and redemptions. We do not consider the minutiae of acquisition and redemption costs here as these correctly lie within the realm of transaction cost analysis. In practice, funds will manage gross contributions and redemptions in the “box” in order to lower the portfolio impact to net flows. Net new contributions will increase the amount of the initial portfolio. By contrast, net redemptions, not met by reductions in cash balances, should be treated as involuntary sales and these amounts deducted from the total securities sales volume. The initial fund value should also be reduced by the amount of redemptions. The logic here is that while redemption crystallises the holding period of the investor, it should have no effect on the holding term of the residual fund. Index fund sales of securities are treated as sales, even

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though rebalancing due to index constituent changes is proximately involuntary. Of course, there are many further management techniques and instruments to consider. If the portfolio is levered by borrowing, this raises the initial value and lowers the turnover proportion. In the case of a portfolio of £100 which turns over £20 reinvesting this, and is then levered to £200 with the sales turnover unchanged, the holding term doubles. Repo is a sale which adds to the turnover figure and the cash received adds to the total amount of the portfolio. If held as cash, it inflates the cash held figure as previously; if invested it doesn’t. Similarly, portfolios may utilise other instruments such as futures and options in the management of the portfolio. The acquisition cost of these

instruments is treated exactly as the purchase of a security. (Collateral posted as initial or variation margin should be treated components of the instrument’s acquisition costs.) Here it is the sale or maturity proceeds of the instrument which determines the figure to be added to the sales calculation. One complexity is that payments of interest on derivatives contracts are treated as sales. Though such instruments may by their construction deliver leverage to the fund, there is no adjustment made to the fund’s cash leverage value beyond that due to the purchase costs. We are concerned solely with the holding term of the portfolio cash investment value. Purchases and sales of money market funds are treated as being cash equivalents and are excluded from sales turnover figures. Manager fees and other costs deducted from the portfolio are treated as sales. In both cases the cash balance would also be

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lowered. Multi-fund arrangements are equally not problematic. The individual funds are treated in the manner already described with transfers out to other funds being treated as sales since these are discretionary. The individual funds may be aggregated in a money weighted manner to provide the top level holding period. The figures needed to construct this measure are all currently readily available in the accounting systems of fund managers.

increasing the turnover of an asset while maintaining positive margins will increase the return on assets. However, turning over financial assets differs from this; it incurs transactions costs, involves the sale, not reuse, of the asset and requires an increase in the return of the new asset relative to the old for there to be any increase in the return on assets. Obviously, longer holding periods lower the effect of costs on total performance as these longer periods spread those fixed costs over longer periods.

By way of ending Portfolio turnover statistics are usually presented only in connection with their use in transaction cost analysis, where there is clearly a positive relation between volume and costs, which runs contrary to standard financial analysis. A restaurant which increases its service from one to two sittings increases its return on assets. In general, Edition #4

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Perhaps the most important aspect of holding periods is their relation to maturity transformation and systemic risk. If securities are all traded daily, the maturity transformation in the market is maximal, and it is risky and unstable. It may be compared with that in banking where deposits may be immediately callable while loans are set for terms of years - the preconditions

for failure by bank run. When securities are held for long periods, the maturity transformation is greatly reduced, and the market is systemically less risky and more stable. Note the performative nature of this, which runs counter to the usual financial model where risk increases with (the square root of) time. With widespread publication of holding period statistics there is much further empirical research to be done, and knowledge to be gained. For example, preliminary and incomplete analysis suggests that there is a strong positive relation between market volatility and portfolio turnover, which could be investigated fully. Given the debate on short-termism, the empirical relation between investment returns and portfolio holding period would be more than academically interesting.

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ARTICLE: RICHARD FIELD

ASSET MANAGERS AS A BARRIER TO

by riChArd Field, direCtor | institute For FinAnCiAl trA In the following excerpt from Transparency Games: How Bankers Rig the World of Finance, I discuss how the rise of professional asset managers has actually become a barrier to the provision of transparency and how the Transparency Label InitiativeTM removes this barrier. How does the market for an individual security (stock, bond, structured finance product) work if investors are not required to look at the information disclosed? The fact all investors are not required to look at the disclosed information does not mean some investors will not look at the disclosed information. It is the investors and the third party experts who look at the information who are likely to understand how to use the disclosed information in the analytic and valuation models of their choice to independently assess the security. The investors who don’t look at the disclosed information can piggyback off of these investors and third party ex-

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perts. For example, the investors who did their homework or hired trusted third party experts to do their homework for them add stability to the price of the security by being buyers when the price is below their valuation and sellers when the price is above their valuation. In the absence of valuation transparency, investors who use the disclosed information to provide price stability are absent. As a result, prices for securities make movements similar to what occurred for structured finance securities in 2008 — one day the price is par and the next it is 20% of par. One reason for providing loan-level disclosure on an observable event basis for structured finance securities

or current exposure details for banks is to eliminate these severe price swings by making it possible for investors to assess these securities. With the ability to make this assessment, investors can know what they own or know what they are buying. The bank/sell-side dominated lobby, part of Wall Street’s Opacity Protection Team, has pushed back strongly against this type of disclosure. One of their leading arguments against providing disclosure, on an observable event basis or a current exposure detail basis, has been that providing this much data would confuse investors. Frankly, the unsophisticated investor1 cannot analyze or value banks or struc-

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TRANSPARENCY

AnspArenCy tured finance securities, he/she has enough trouble with stocks and plain vanilla bonds. However, the unsophisticated investor is not likely to buy these securities directly. He/She is likely to invest through a mutual fund or hedge fund with a professional portfolio manager. The professional portfolio manager can choose to use the loan-level disclosure to value structured finance securities and the exposure detail disclosure to value banks or they can hire an independent pricing service that is capable of valuing

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the securities using this disclosure. Let me repeat that, the unsophisticated investor cannot analyze or value structured finance securities or banks. So, he/she hires a professional portfolio manager. He/She hires a manager assuming either the manager or their firm have the ability to analyze and value the structured finance securities using loan-level data and the banks using current exposure details or that the manager or the manager’s firm will hire an independent third party service to do so.

Asset allocation fallacy As a fiduciary, having a clear understanding of the limits of your own knowledge is essential, but perhaps not as common as one would hope. A combination of hubris and over-confidence can lead to poor decision-making as admitting ‘I don’t understand’ is difficult when you have been hired on the basis of your experience and

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expertise.2 On the surface, it is reasonable for the unsophisticated investor to turn to a professional investment manager to do what the unsophisticated investor cannot do and that is assess the risk of and value securities. Unfortunately, where this reasonable strategy by the unsophisticated investor breaks down is the “asset allocation fallacy”. First, the unsophisticated investor assumes that because an investment manager will take his/her money to invest in a specific type of asset this means the manager thinks investing in assets of this type is a good idea from a risk/reward perspective. This could not be further from the truth as a willingness to accept money to invest in a specific type of asset doesn’t say anything about whether an investment manager thinks these assets are undervalued or represent a good idea from a risk/reward perspective. Instead, it might reflect an investment manager is constrained in what assets the manager can invest in by his charter. Second, the investment manager assumes the unsophisticated investor’s investment reflects the unsophisticated investor’s fully informed asset allocation decision and therefore his/her desire for exposure to the assets the manager invests in. The manager assumes the unsophisticated investor understands the risk of these investments as outlined in a prospectus or in

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the investment manager’s presentation of their expertise. It is this assumption that the unsophisticated investor understands the risk that is flawed.

the truth to the unsophisticated investor has significant implications for the investment manager’s ability to demand valuation transparency.

The unsophisticated investor knows he/she cannot assess the securities’ risk and value. What he/she doesn’t know is that in the case of opaque banks or opaque structured finance securities neither can the investment manager.

Buy-side has no leverage to force valuation transparency.

Why don’t the investment managers disclose in plain English opacity prevents them from assessing the risk of or value of banks and structured finance securities? It would make them unemployed. How much money do you think an investment manager would manage if he said to investors that he was going to blindly gamble with their money? So, rather than disclose that he is blindly gambling with the investors’ money, the investment manager justifies blindly gambling by saying he is simply following the investors’ asset allocation decision. A decision that most likely wouldn’t have been made if the investment manager had to disclose he was investing in assets that didn’t have a Transparency Label saying the assets provided the valuation transparency necessary so the risk and value of the assets could be assessed. This exercise in not telling

The way the buy-side can apply pressure for valuation transparency is to refuse to buy opaque securities. This is known as the Wall Street Walk: as in, walk by the opaque securities and buy the securities offering valuation transparency. However, the Wall Street Walk is not possible for investment managers who manage funds that are limited by charter to investing in the opaque securities. They have to buy these securities. Because they have to buy these securities and they are unwilling to disclose they are blindly gambling to investors who hired them on the basis of their claimed expertise in the unknowable, these investment managers not only have no leverage to force the provision of valuation transparency, but they act as a barrier to bringing valuation transparency to the securities they invest in. These portfolio managers are also unwilling to disclose to the press they are blindly gambling. As a result, when asked by the press if they need valuation transparency to assess the risk and value of

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the black-box banks or the brown paper bag subprime mortgage-backed securities, the portfolio managers respond “no”. They assert they have proprietary ways including sophisticated computer models for valuing the contents of a black box or brown paper bag. By looking at unsophisticated investors, we discovered their use of the professional investment management industry means not only do they end up unknowingly blindly gambling with investments where there is not the valuation transparency they deserve, but their ability to demand valuation transparency is also severely restricted. Simply put, there are charter constrained portfolio managers whose job depends on their not admitting the securities they invest in are opaque. Naturally, to avoid admitting they are blindly betting with the investors’ money, they do not push for valuation transparency. Instead, they become cheerleaders for the current inadequate disclosure practices. As a result, even though the unsophisticated investors are responsible for all losses on their investments, they don’t have a strong voice for preventing opacity taking over a financial Edition #4

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system based on valuation transparency. This is where the Transparency Label InitiativeTM comes in. Unsophisticated investors can use the labels to prevent opacity taking over a financial system based on valuation transparency. For example, unsophisticated investors can prevent portfolio managers from blindly gambling with their money by restricting their investments to funds where the portfolio manager can only invest in securities that have a label. What about large investors? Without the Transparency Label InitiativeTM the unsophisticated investor might not be able to demand valuation transparency, but what about institutional investors like hedge funds and Warren Buffett? Warren Buffett would be happy to point out, disclosure of each position in the banks’ trading and investment portfo-

lios at the end of each business day would dramatically squash the potential profitability of this business model. A number of years ago, he negotiated with the SEC and received permission to delay disclosure of his investment positions. Why would he have wanted to delay disclosure? As Mr. Buffett said... How would you feel if you had to announce every story idea you had?3 If he was buying, he wanted to delay disclosure to minimize the price he paid for his entire position. By not filing, he does not have to compete with investors who piggyback on his reputation and ideas. These investors would have increased the cost of his position by driving up the price of stock with their buying. If he was selling, he wanted to delay disclosure to maximize the price he received for his entire position. By not filing, he does not have to compete with investors who

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piggyback on his reputation. These investors would have decreased his sale proceeds by driving the price of the stock down with their selling. Clearly, there are advantages to having opacity when it comes to buying and selling securities. Mr. Buffett shows why certain large investors do not push for valuation transparency. They are worried they

will have to provide transparency too. By showing a clear preference for having opacity on their own actions, these large investors undermine their call for better valuation transparency. However, there are a number of other large investors who don’t have the same concern about providing transparency into their positions. These investors include endowments, foun-

dations, pension funds, central banks and sovereign wealth funds. They benefit from requiring valuation transparency because there is no reason these investors should engage in blindly gambling. For these investors, the Transparency Label InitiativeTM is a necessity as it both identifies investible securities and puts pressure on issuers to provide valuation transparency.

To me, unsophisticated investors are basically everyone other than professional money managers. This definition differs from the SEC’s definition of a sophisticated investor based on net worth or the last three year’s net income.

1

Lady FOHF (2014, August 3), On Embracing Stupid, Notes from the Hedge, http://ladyfohf.tumblr.com/ post/93685456346/on-embracing-stupid

2

Sorkin, Andrew Ross (2011, November 14), One Secret Buffett Gets to Keep, NY Times Dealbook, http://dealbook. nytimes.com/2011/11/14/one-secret-buffett-gets-to-keep/?ref=business 3

Richard Field is the Director of the Institute for Financial Transparency, an organization focused on bringing valuation transparency to all the opaque corners of the financial system and the sponsor of the Transparency Label InitiativeTM. Since the mid-90s, he has been a leader in defining and implementing transparency in the structured finance industry. Mr. Field designed, developed and patented a low cost information system to handle all of the complexity involved in making each structured finance security transparent. His solution uses a data warehouse to provide all market participants with easily accessible, standardized collateral level data on an observable event basis over the life of each deal. In April 2008, Mr. Field wrote a Learning Curve column for Total Securitization that described the gold standard for transparency for structured finance securities. Subsequently, he consulted with the National Association of Insurance Commissioners on their July 2012 white paper on financing home ownership. In both of these widely read publications, he discussed the need for both timely disclosure of the underlying collateral performance information and the use of a data warehouse to capture, standardize and disseminate this data. Apparently, while his call for timely disclosure was ignored, his call for the use of a data warehouse was heard. In Europe, the European Central Bank championed the creation of the EU Data Warehouse to provide transparency into structured finance securities. in the U.S., Fannie Mae and Freddie Mac are in the process of building this data warehouse for residential mortgage-backed securities. It is called the Common Securitization Solutions LLC. About these two data warehouses, Mr. Field remarked, as the beaver said to the rabbit looking down on the Hoover Dam, “I didn’t build it all by myself, but it is based on an idea of mine.” Earlier in his career, he worked as an Assistant Vice President for First Bank System and as a Research Assistant at the Federal Reserve Board. Mr. Field has an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.A. in Economics and Political Science from Yale University.

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ARTICLE: GAYLE SCHUMACHER

A PLEA FOR THE RETAIL INVESTOR

by gAyle sChumACher, Former md, gloBAl heAd oF inve Imagine a lunch of City professionals and the subject turns to fees, and how much they personally pay for investing. And let’s start the bidding at 200bps - silence- and count down. There would probably be the first muted response at about 100bps, with possibly embarrassed explanations about saving time and convenience. But it will crescendo at 50bps and below, with many at 30bps. And there lies the central contradiction of the deal offered to the average retail investor who, with no reason to know anything better, will frequently be paying 200bps and not even know. Some readers may remember Leanora Hemsley, the hotelier who was tried for tax fraud in the 80’s and was reported to have said ‘ Only the little people pay taxes’. The same goes for investment fees. There are two structural changes that place fees firmly centre stage for individuals contemplating their future savings. First, the switch from DB to DC pensions so that the return risk is borne by the individual, as is the case with SIPPs and the stakeholder pension. The old model of DB guaranteed the return for the individual, with the risk borne by, and the fees

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paid by, a company. By contrast, in the DC world, fees compounding over 30 years can be very material to the value of the pension that an individual will ultimately receive. Second, in a low interest rate environment, with the risk free rate crushed by QE, future returns from risk assets can be expected to be lower. In the 1990s, equity returns were double digit. The same calculation today might model future risk asset returns to be closer to 5%; in this envi-

ronment, unwittingly paying high fees might claim close to 40% of expected return. Since Vanguard arrived in the UK in 2009, it has stamped its authority and evidence on the active v passive debate, highlighting the extent to which successfully managing fees can be as material for return as is managing risk. This has coincided with increased questioning of the value of hedge funds in the institutional market, with few able to defend their 2/20 fee model. As a result, there is a pincer movement of pressure on long only asset managers who are caught between cheap ‘vanilla’ passive strategies and sophisticated hedge funds who are also ceding territory on fees.

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estment

oFFiCe | Coutts

These fee trends, which started in the institutional market, have certainly spilled over and helped the retail investor but institutional fee transparency remains far greater, as does awareness of its importance. Just as powerful in bringing change to the retail investment market has been the role of innovators who have built new business models to ‘solve’ for a lower fee future. In the UK, one of the best known and market leader in discretionary portfolio management is Nutmeg but even their headline fee (which falls to 30bps for savings of over £500,000) is expensive compared with Betterment in the US where their headline fee is 15bps for assets over $100,000. In an increasingly global market, price pressures are crossing continents and can now be seen, albeit slowly, adding to the headaches of bankers in both Zurich and Singapore. There is no reason not to expect best practice to migrate in a global market but the pace of change may still be quite slow if those benefitting from the status quo are effective in its defence. Lobbyists such as the Edition #4

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Transparency Task Force as well as the FCA have a critical role to play in sustaining the pace of change in London. Finally, the retail investors themselves are changing and are expecting something more aligned with their other retail experiences. The investment industry is taking tentative steps to address the under 40 generation, for example via the development of the robo-advice model. But this still feels more about being a platform for delivery and preserving profit margins, rather than a move to reduce fees to match a low return environment. For many, a key component of their retail experience is simple, instant price comparison- whether that is for insurance and mortgages, or the ability to walk in a shop in Covent

Garden, find a better price on-line from a warehouse in north Wales and expect and receive a matching discount. This generation has also observed the 2008 credit crash and probably watched ‘The Big Short’, neither of which encourage people to be either impressed by, or trusting of, the financial services industry. But while they do not trust financial services, it does not mean that they are equipped with the knowledge to be smart in navigating the web of complexity spun by the industry. Try putting yourself in the shoes of a novice investor, and then navigate on-line from DIY platforms talking about platform charges, to

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discretionary managers referencing AMCs, and on to IFAs with advice fees. Then add on the whole debate about active v passive. For the majority of people investing their hard won savings, or buying Junior ISAs to fund university, most of this is a fog of unintelligible jargon and complexity. And for some, thanks to effective marketing, there is still a touching belief that there is a positive correlation between cost and investor outcome. To misquote Donald Rumsfeld, ‘They don’t know what they don’t know’.

and small type T&Cs. Unbiased, basic financial education is a social good that now warrants the serious attention of a few of the very same smart people who were brilliant at mastering and creating financial complexity. It is a worthwhile intellectual challenge to now use that technical knowledge to answer the exam question: please make simple,

intuitive and accessible the whole universe of retail investing and pension saving. A very important component of good financial education will be about fees and an understanding of how they compound to consume returns: this will require transparency on fees, the first necessary element for creating informed choice for retail investors.

Gayle Schumacher retired in 2015 but was formerly MD, Global Head of Investment Office, Coutts. She writes in a private capacity. gayle is a valuable member of the Transparency Task Force’s Costs and Charges Team.

There are many academic studies on the understanding by the general public of basic financial principles but the apocryphal statistic of ‘50% of the population can’t calculate 50%’ is a useful summary of the central thesis: understanding of pensions and savings is very low and the average investor is easily bamboozled with marketing

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WHAT’S HAPPENNING ON THE 21ST SEPTEMBER?

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS:

To book click

HERE!

Where is it?

Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London NW1 3BF

When is it?

Wednesday 21st September, 9:30 to 16:30

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ARTICLE: JB BECKETT

AM WAR GAMES: COEFFICIENTS OF IN

by JB BeCkett, uk representAtive | AssoCiAtion oF pro And Author, #new Fund order As the asset management industry barrels into a post-RDR paradigm firms have been scaling up their research capability, product mix and acquiring assets. This huge defence spending is remote to end investors yet has a categoric impact on the costs of fund management. AM Defence Budgets: How Transparent are People Costs to Investors? It is well supplied by economic refugees including those displaced from investment banking, sell side research, adviser fields not to mention the endless supply of new CFA graduates. Can the large active houses continue to sustain the size of their head count as annual management charges (‘AMCs’) fall to around 5075bps (and below)?

What sort of economies of scale come into play? Can the demise of ancient empires and contemporary defence spending teach us any lessons about the sustainability of such high investment stratagem? Where broker-led research is also set to reform, which houses are set to benefit from their in-house research capability? Is growth in asset company’s cyclical, secular or both?

Have historical active management fees skewed the active-passive management debate? Lastly are investors suitably recompensed for that intellectual professional capital? ‘Size isn’t everything’ they say and yet fund selectors have long given preference to asset managers on grounds of ‘strength in depth’. It is the reciprocal and riposte of ‘star manager’ culture but it has also helped support an ever concentration of asset flows into large houses over smaller boutiques. More people, more cost. Cost is a burning issue within the active-passive debate, one of trading cost (portfolio management fees) versus residual return (active share and generation of alpha). Indeed, it is the very trade-off of hiring-in more ‘skill’ to expand research resources, against increased people and associated costs, that has skewed the active-passive debate thus far. Introduction This paper empirically ex-

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NEFFICIENCY?

oFessionAl

Fund investors,

amines the head count and assets under management of some of the UK’s largest asset managers, and compares their aggregated performance. This paper proposes fund selectors consider key, yet simple, due diligence questions: 1. Is there an efficiency between manpower resources and aggregate performance? 2. Do acquisitions, supertanker funds or passive arms impact efficiency? 3. Any correlation between overall fund fees and size of portfolio teams? 4. What it as an optimally sized asset team for an active fund? 5. Does that number vary by asset class? 6. How many unique mandates is the team stretched across? 7. Does the current team contain staff arising from acquisition legacy? 8. Does the house operate an autonomous multi-boutique structure?

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9. Is there a definable relationship between AUM and size of team? 10. When does too much in-house resource become inefficient? People Power? Growing up I was a massive fan of computer strategy games; indeed, war strategy generally ala Tsun Tsu or World War 2 fascinated me growing up. It perhaps explains (partly at least) my obsession with industry ‘war games’ and plotting everything onto either macro, industry or investment maps. Let’s start with an obvious question. If adding people has a cost impact on the operational margin, then why do asset managers expand their portfolio management head count? A. Add research breadth, and coverage of asset classes, to launch more fund variants into more sectors (country funds and absolute return funds are good recent examples). B. Better technical capacity to manage increasing book of assets (‘more hands’). C. Collecting specialists to help secure specialist man-

dates or bring sub-advisory assets in-house. D. Depose ‘star managers’ from other firms to lure legacy assets. OMAM’s coup to attract Buxton or Artemis signing the Threadneedle US Equity team (led by Cormac Wheldon) are good examples. E. Enable technical advantage, depth of expertise, succession planning and allow cross-research between portfolio teams (E.g. Multi-asset cum-DGF funds). F. Foster reputation advantage and marketing collateral with buyers, ratings and media. G. Gain information advantage in the price discovery and management of assets. Resources can be used in marketing to facilitate higher (differentiated) pricing. Sometimes head count expansion is a bid to protect or increase earnings revenue, sometimes in response to lagging or deteriorating performance. More often expanding resources are in response to cover increasing assets, while

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still maintaining credibility with fund selectors. Asset Management firms have taken two divergent strategies to address relative underperformance and/ or fund outflows. The first approach (seen frequently through 2008-09) was the cutting of operational bases, including reducing the head count of those costly portfolio teams. The second is to acquire asset books from other firms to increase the asset:people ratio and derive economies of scale from a flattening operational base. Certainly we observed some firesales through the credit crisis but more recently a number of fair-value to above fair-value acquisitions have occurred. The first approach is a product of McKinsey-like Lean thinking (find me a firm not full of yellow, green, brown and black belts ‘consultants’ these days) but ostensibly a passive-defensive strategy. This approach tends to have quick but limited results; if the sector expands and competitors expand then the firm will lose market share. The second approach aims to capture market share. It is more costly short term but can provide a levy-like jump in expected earnings growth. It is the more aggressive (riskier) approach as operational costs can become unruly during the acquisition period. The acquiring firm also had the difficulty of managing both the incumbent portfolio team and the inherited team from the acquired firm. The firm has to decide who to keep, who to handcuff from leaving

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and who to ‘release to the market’. I have seen examples in recent years whereby the acquirer has failed to pick the right line-up. The first eschews leverage in favour of operational savings. It bets on competitors being unable to grow their asset bases sufficiently or being less operationally efficient. Such firms may have focussed/preferential distribution streams and protected ownership. Fidelity, Invesco and Threadneedle are all good examples. Smaller houses often lack scale to acquire other houses and will therefore focus on growing assets organically and building strength in key sectors with relatively modest team sizes. Artemis and Hermes are good examples of this. In the face of downward cost pressures more aggressive firms leverage their larger resources (people, systems) to manage larger scales of assets at a similar level of operating cost. What we have seen is a ramping-up of consolidation and acquisition among asset managers since the credit crunch and, in the UK in particular, in response to the Retail Distribution Review (‘RDR’). Some firms have attained scale through passive propositions, which tend to be staff-lite by design. Examples include Schroders, Blackrock, BoNY Mellon, Henderson and Aberdeen. The role of the fund selector cannot be underestimated here. It is often the pressure (expectation) of institutional and large retail buyers that has encouraged this effective

arms race between houses. Firms have responded to the regulatory and buyer backdrop by building assets and head count at a rate of knots. Most CIOs that I have spoken to lately all harbour ambitions to increase their asset base often through a handful of supertanker funds. The question then is whether our end clients have benefitted from this expansion: whether more assets and more people mean better returns? The answer is one of efficiency. Coefficients of Inefficiency: Parkinson’s Roman Empire? The demise of the Roman Empire could be glibly attributed to over-expansion with a deteriorating support infrastructure and political in-fighting in Rome. It could also be put down more simply to a business that had grown too large, each component failing to add value over the next, a diminishing rate of return and arising vulnerability to competition (in this case barbarian hordes). “Parkinson’s Law” could be generalised as: the demand upon a resource as it expands to match the supply of the resource. Parkinson defined that after a certain amount of people, doing a thing, then the added value of what those people do, diminishes. The world is awash with sayings but ‘too many cooks spoil the broth’ is probably most familiar if that ‘soup’ in this instance had an investment flavour. Parkinson defined a semi-humorous “co-

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efficient of inefficiency”. See ‘Parkinson’s Law: The Pursuit of Progress’, London: John Murray, 1958. Anyone familiar with US defence budgets of the last 20 years, 70s British car industry, IBM in the 1990s or Germany’s Eastern front campaign versus Russia will draw easy analogies. I think this is relevant to the fund selector because I believe the asset management industry of the last decade makes for an equally good example. E.g. US Defence Spending: Apex and Redirection? For years big Defence was best and great for business given the US is the largest armaments manufacturer and exporter in the world. To procure and twist a Detroit saying ‘weapons that blow things up on a Sunday, sell on the Monday’. The US has had the largest defence budget for so long that any changes to it rarely draws little attention from the media. Yet if you read the Department of Defence’s 2015 budget proposal (March 2014) then there has been a dramatic change in direction. The relevance of which will become clearer (I hope). Triumphant ‘liberator’ post WW2, yet confronted with a Cold War with the Soviet Union, and China, the US has worked hard to exert its military muscle within tight confines and to secure its resource needs. The last 50 years has witnessed a number of localised regional land wars punctuated by air and sea supremacy (Korea, Vietnam, Gulf1, Afghanistan, Gulf2) the US is left reeling Edition #4

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with a huge national deficit, astronomical defence budget and precious little ‘wins’. This sense of malcontent is only exacerbated by a national feeling for retribution post 9/11, a move away from Middle East oil dependency and the rise of cyber-attacks, hacks, wiki leaks, intelligence debacles. The US is also facing up to its inability to solve new flare-ups in the Gulf or curb the territorial incursions by Russia and China. In response the US is scaling-back and redirecting its resources to better meet the 21st challenges of fourth-generation warfare. The days of being the protector of the ‘free world’ and international policeman are ebbing away. In 2014, Defence Secretary Chuck Hagel proposed transparent plans to shrink the United States Army to its smallest force since before the World War II build-up and eliminate an entire class of Air Force attack jets. The aim of the Pentagon budget was to aggressively push the military off the war footing adopted after the terror attacks of 2001. For example, the Army, which took on the brunt of the fighting and the casualties in Afghanistan and Iraq, already was scheduled to drop to 490,000 troops from a post-9/11 peak of 570,000. Under Mr. Hagel’s proposals, the Army would drop over the coming years to between 440,000 and 450,000. That would be the smallest United States Army since 1940. For years, the Pentagon argued that it needed a military large enough to fight two fronts simultaneously — say, in Europe and Asia. More

recently the military has been ordered to downsize that ambition. The subsequent budget announced did appear to follow Hagel’s proposals, in which the DoD wrote: ‘The Department achieves a balanced approach by reviewing all areas of the budget for potential savings. This includes achieving new efficiencies, eliminating duplication, reducing management headquarters and overhead, tightening personnel costs, enhancing contract competition, terminating or restructuring weapons programs and consolidating infrastructure.’ What that means in practice is a move away from large scale land war capability to a broader nimbler mandate, one with reducing manpower. The backdrop is cost pressure. Defence is big business and the change in the DoD’s direction may reverberate with some fund strategists. Asset firms have for years followed a fairly simple strategy of: acquire asset commitments, launch fund, seed fund, gather assets, seed and launch next fund and so on until the firm has a fund in every sector. Fund development was obsessed about gap-analysis and with 34 IA sectors (plus offshore equivalents) then it is not uncommon for larger fund houses to have well in excess of 50 live funds. The problem then is that it is harder to close funds than launch and the industry is full of old outmoded legacy funds that still have investors and earn revenue but also, critically, require people to manage them. These funds absorb resources and can dilute a team’s aggregated performance

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due to mandate limitations. If resources are paired back on old funds, then performance tends to deteriorate. However, firms now have a difficult choice: to stay big and try to capture market share through broad coverage, acquisition and large head count or to be more focussed, nimbler with smaller head count. With the rise of supertanker funds and multi-asset investing it is possible (if not necessarily desirable) to manage over £50bn with only a handful of mandates. The first approach can lead to inefficiency and declining aggregate performance but may be offset by having sufficient top performing flagship funds and a large revenue base. Having broad coverage improves the chances of having winners (and losers). The second option reduces the likelihood of poor aggregate performance, by focussing resources, but the firm may lack sufficient headline funds in the right sectors, at the right time, and therefore a more volatile/concentrated revenue stream plus more concentrated redemption risk. That trend has already shown itself through slowing numbers of Pan-European fund launches and rising fund closures. The fund universe is gradually shrinking. Research Warfare: Disarmament of ‘Sell Side’ Brokerage? One variable to consider can be found in changes to broker research and the way it is paid. Tough new rules are being introduced across

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Europe that may curb the use of broker research by active fund managers. This move may potentially hinder boutiques ability to compete with the global asset managers with large in-house research teams. ‘Sell-side’ research, as it us commonly referred, is a common tool of the active manager, purchased to help the price discovery of an asset. The use (or not) of external research is a key factor in how asset managers structure a portfolio team to cover £Xm assets. Consequently, changes to relating rules may have a large bearing on how a firm conducts research, the competitive landscape between firms and strategic rationale for building a firm’s in-house research capability. It is worth stressing again that these rules primarily impact active rather than passive asset managers. When the FCA issued consultation CP13/17 on the banning of dealing commission, the overriding consideration for the FCA is the protection of investors and the removal of unfair practices and costs therein. This should also include ensuring long-term competition in the fund industry, mitigating barriers to entry and not over-penalising smaller firms that rely on broker research versus larger fund houses that can leverage proprietary research and economies of scale with research providers. This threat to competition was already (indirectly) highlighted in the OFT’s reports into workplace pensions in September 2013.

I am in broad agreement with the points publicly stated by the IA in its report ‘The Use of Dealing Commission for the Purchase of Investment Research’. Specifically moving to an open and transparent basis is appropriate in terms of treating customers fairly. However, a move to a ‘cash model’ may increase costs for smaller firms that are already facing diseconomies of scale, as the result of price unbundling following RDR and platform review. The IA stressed in particular that creating a pure cash market for research could throw up obstacles for start-up investment managers by raising barriers to entry and could have unintended impacts on SME research. This creates the potential to disadvantage smaller resourced asset managers in favour of larger firms. This may seem at best a footnote but the expected development of this regulation may be a key variable in asset managers’ strategic outlook for the next 3-5 years and resource planning for the foreseeable future. It also has a disproportionate impact on equity funds. Asset Management Firms: AUMs and Headcounts? Getting to the point of the paper, how do asset management firms compare in terms of head count as a ratio of assets managed? How then do these teams compare in terms of aggregate performance? The all essential bang for buck.

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Based on data supplied by firms covering Q1 and Q2 2014, the picture looked like something in the chart. The first obvious thing to jump out is the huge skew created by Blackrock’s equity assets. It is worth remembering that a large proportion of which is passively managed. The following comparison shows the median ratio of Assets to People, across the 3 main asset classes, for the 9 sample firms. Comparing the median results of all groups indicates that the best economies of scale occur for multi asset funds. This should be unsurprising as these desks often leverage the cross analysis from the other desks but already gives some indication that these strategies can be subsidised by equity and bond

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funds. Despite the skew of the Blackrock results, Equity funds have the most concentrated assets per head count, a legacy that goes back to how industrial sectors are often covered by dedicated specialists and hence equity desks tend to have more analysts. In future I expect a migration of equity and bond professionals into multi-asset teams. This follows the model developed by Standard Life Investments for the GARS multi asset team. Group-specific observations include: Blackrock: Huge assets should drive economies of scale via an acquired passive business (from Barclays) and shrewd acquisitions (inc. once giant Merrill Lynch) through the credit crisis, nicely backed by Bank of America. However, that benefit has not neces-

sarily translated into strong relative performance across its active funds. Blackrock easily had the most professionals overall (527) and those narrow margin passive assets will not support an underperforming active desk for long. In the UK Blackrock had rested heavily on its UK Equity and Gold & General funds, which have come under pressure. Blackrock has focussed some time on its passive business since buying from Barclays; more recently we have seen signs that Blackrock is also shifting investment within its active business in favour of the multi-asset proposition.

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Newton: The multi-boutique approach of parent BoNY Mellon means that Newton does not obviously benefit from economies of scale other than through BoNY’s distribution such as the US. The house suffers some redemption risk in terms of asset concentration around Real Return and Global Higher Income funds. It has seen manager instability, defections and a general contraction away from regional building block funds. As-is Newton still appears to have good scale across its Equity and Multi-asset funds married to some decent performance but the firm has struggled to chase £50bn AUM, which was the aim of outgoing CIO Simon Pryke. Threadneedle: Assets appeared well scaled across asset classes following a few years of strong performance and inflows into its ‘select’ equity funds and property offering. Threadneedle appears to now be enjoying some economies of scale with sister brand Columbia. The team of 118 is relatively well distribut-

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ed across the asset classes. Unfortunately, the loss of Cormac Wheldon’s US Equity team, Simon Brazier and Leigh Harrison are unquestionable blows and follows the much earlier departure of global select manager Jeremy Podger in 2011. The fixed income team is well resourced and broadly proportional to assets albeit the credit team may need some consolidation. Parent Ameriprise now have to weigh up how to focus the house and seemed to have decided to morph the business into Columbia. Artemis: Artemis’ relatively small fund offering reflects its boutique focussed beginnings. Head count is scaled appropriately and better than the peer median. This was well illustrated by having only 21 equity professionals, only 3 more than Hermes while running around 3 times the Equity AUM. Artemis has longed to break-away from its origins in managing UK long-only assets. Stealing Threadneedle’s US equity team helps Artemis to push

its global capability. This strategy seems prudent given the trend of flows in favour of global and multi asset funds. Where Artemis will still need to invest is in its multi-asset offering with only 5 professionals quoted in 2014. It will also need to adapt from its volatile origins to become a more stable performing proposition. Fidelity FIL Ltd: Fidelity’s overall figures were broadly in line with the peer median but skewed by better scale across bond and multi-asset teams and poorer scale in its Equity offering. Fidelity had the second biggest equity team (227) in the sample group, a long-standing key sales point of Fidelity. Going forward, Fidelity continues to undergo change with a refocus of its multi-asset Investment Solutions Group following retirement of Richard Skelt and purchase of the GEOD passive provider in the US. A multi asset team of only 23 will likely require further investment over the next few years. Selective

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additions like Bill McQuaker look well judged. Fidelity has also lost UK market share in recent years and may find it challenging to retain and market that traditional ‘research’ advantage. Schroders: Schroders has been the quintessential scale player for the last few years, culminating in a large investment in both fixed income and multi asset teams and the acquisition of Cazenove. The fixed income team (141) could rival any other, in terms of size, and showed a clear gambit to build assets, most likely as a support arm to the group’s growing presence in the multi asset market (91 professionals) and fixed income more generally AUM across bond-biased Europe. In the event the multi asset team retrench away from fixed income, or the firm fails to gather bond assets, then I would expect Schroders to cut back its fixed income team over the next 5 years. Lastly, with the greatest number of Equity professionals (271) that legacy looks sub-optimal and I would expect further consolidation post-Cazenove as the business continues to leverage existing resources to support the multi asset proposition. UBS: UBS has ostensibly been in a phase of recovery and rebuild following the credit crisis and taboo Asian ‘black-box’ outflows. UBS has one of the largest legacy fund ranges (well over 700). With 192 professionals, UBS’ Equity offering had the poorest scale versus assets, in the sample group, and I expected restructuring to be likely if no Edition #4

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new AUM was forthcoming. Part of the issue may lay in the large legacy funds and restructuring and consolidation is a likely and prudent strategy. Performance across the fund range is best described as varied. By comparison the group’s bond (145) and multi asset (90) teams looked better scaled relative to AUM (albeit the bond team had 4 more professionals than Schroders). Hermes: Hermes enjoys a preferred distribution through its legacy as asset manager of (and owned by) the BT pension scheme. Since re-branding Hermes has managed to attract over a dozen other large institutional clients. Hermes’ relatively small AUM perhaps dictates what first appears to be an odd distribution of resources. Most if its 35 quoted professionals are Equity focussed and only 4 in Fixed Income. Hermes’ multi-asset offering remains de minimis and clearly an area the house needs to address, especially as institutional clients continue to migrate in that direction. Update: The recent launch of their dynamic multi asset fund appears to be a step in the right direction. Henderson: Henderson’s head count (168) is a legacy of acquisitions of New Star and Gartmore businesses. While Henderson does not have the largest portfolio team outright, in proportion of people to assets it is the most concentrated. This is especially so for the 140+ equity team under Graham Kitchen and I expect more consolidation will be necessary

should Henderson lose assets. Overall Henderson is at risk of diseconomies of scale and people costs detracting from the potential value-add of the team. This will only come to bear in a falling AMC environment and something Henderson can offset through a number of strong performing funds. Henderson also lack a large multi asset team (14) and an obvious area for investment for the next few years, noting the recent departure of head-of, Bill McQuaker, to Fidelity. Bang for Buck: Performance comparisons proved difficult due to high survivorship bias, sheer number of funds involved and diversity of product maps. Of the firms compared the general trend was one of better relative returns among smaller more compact propositions. This is unsurprising as larger propositions are more likely to have older legacy funds. More pertinent to the question of this paper, was that there was no clear performance advantage among those houses with larger portfolio teams than those with more compact teams. Reasons for were inconclusive but some relationship between AUM and number of funds existed and a larger portfolio team may simply be a function of having to manage more funds. That creates a notion of subsidy, i.e. that the overall operating cost of a large team has to be burdened across all investors (new and old) whereas a boutique will not suffer the same dilemma even if it cannot benefit from quite the same operational economies of scale.

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More transparency and better reporting of performance to portfolio cost is needed. Conclusions: Decision Dichotomy? One obvious point not mentioned thus far is that more globally diverse asset firms have a higher propensity to want and arguably require professionals in a number of locations, industry sectors and asset classes. I am a supporter of active fund management, global research, depth of expertise, local specialist knowledge, the discovery of intrinsic value and opportunity. In many ways then I write this paper not with glee but with sad resignation that many research teams will simply prove more difficult to sustain if not profitably backed with commensurate scale in assets. At the time of initially writing this paper I had not yet fully contemplated the wave of economic migrants, an exodus from investment banking and sell side research in response to tightening banking and broker

research regulation.

ners and losers.

Clearly aggregated performance is a blunt tool for comparison but does help to give some feel of how resources are focussed, stretched and potentially diluted. As an asset firm, it is not in your interest to have weak performing funds on the proposition; yet survival of the weakest makes a sweeping assumption of the apathy among distributors and investors. Until now firms may have been able to extract attractive AMC for very little management resource (or alpha) but Active Share, RDR and changes to the annuity market post 2015 will test this.

This has left the equity desks among some fund houses swollen, compared to the assets/inflows into bond and multi asset teams. If AMCs reduce then the portfolio cost per xÂŁm of AUM managed becomes more progressively difficult to support.

Therefore asset management firms have a number of tough choices ahead, whether to focus on active or passive operations, to invest in multi-asset, which funds to launch (and close) and what resources are required for the next decade. There are more Equity sectors in the IA/ABI classifications than for any other asset class, a legacy of the 1990s-2000s building block popularity. Yet 80% of assets are being herded into only 20% of those sectors and therein 80% of assets are being attracted to only 20% of available funds. Competition in the fund universe has been far from healthy since the credit crisis and this fact is beginning to land home with asset management firms. Cost pressures look set to squeeze earnings and there is a growing divide in terms of net flows between win-

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Casino banking has a new home; it is called your pension fund. As the market continues to move towards multi asset solutions, over building blocks, then I expect to see the largest cost-cutting to occur within Equity teams over the next 5 years. Firms need to begin to reconsider their strategies: whether to expand or to focus, to push building block or solutions, to be a scale player or to be nimble. People growth will likely come in expanding multi asset capability and the redeployment of existing resources to support those solutions. Building block funds will continue to service the institutional market, particularly DFMs and asset allocators whom lack internal capability to run direct assets. That product mix will drive which funds to keep open and how many people are absolutely necessary to the running of those assets. This is a game-changer for asset management. Moreover, fund buyers need to better understand the size and costs of the portfolio teams running their money. The view towards size of team needs to evolve. Big is not always best. Due diligence needs to ask more searching questions

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of fund managers. Common reporting of portfolio numbers and staffing costs is needed. More transparency is obvious. War Games. About the analyst: Jon Beckett (‘JB’) is consulting Chief Investment Officer for Gemini Investment Management www.gemini-im.com. UK Research Lead for the Association of Professional Fund Investors (APFI), Author and Senior Reviewer for the Chartered Institute for Securities and Investments (CISI.org), member of the Z/Yen (www. zyen.com) Long Finance think tank and a leading voice on fund governance and selec-

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tion issues. JB is also a fund selector and gatekeeper for a £100bn plus UK Bank fund proposition. JB has been a fund selector/analyst for over 16 years and 20 years industry experience. JB is a Char-

tered Member of the CISI. JB is author of the book ‘#newfundorder’. For more details about the APFI then go to: www.profundinvestors.com

Affectionately known as ‘JB’, Jon Beckett is a veteran fund selector and strategist with 20 years’ industry experience. JB is a thought leader in the fields of fund strategy, research and governance. Author of the controversial book ‘#NEWFUNDORDER’. He is a gatekeeper for one of the UK’s largest insurance platforms, non executive, columnist and global presenter on a variety of fund management and macro issues. JB’s senior portfolio includes: consulting Chief Investment Officer to Gemini Investment Management board, UK Research Lead for the Association of Professional Fund Investors, Chartered Member, Author and Senior Reviewer for the Chartered Institute for Securities and Investments, and member of the Z/ Yen Long Finance think-tank.

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WHAT’S HAPPENNING ON THE 21ST SEPTEMBER?

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS:

To book click

HERE!

Where is it?

Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London NW1 3BF

When is it?

Wednesday 21st September, 9:30 to 16:30

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The Transparency Times | www.transparencytaskforce.org | August 2016 | Edition #4


T E A M S Rapid progress has been made since our first meeting on 6th May 2015. It is perfectly clear that there are many motivated and highly capable people who are dissatisfied with the status quo and, very importantly, are willing and able to work together to make a difference. These individuals are organised into into 5 teams, with each team having a particular area of focus:The following tables show the make-up of the teams; those in bold red are Team Leaders:

Who’s in the Costs & Charges Team? First Name

Last Name

Job Title

Organisation

Adam

French

Co-Founder & Managing Director

Scalable Capital Ltd

Andrew

Evans

Chief Executive Officer

Smart Pension

Andy

Agathangelou

Founding Chair

Transparency Task Force

Andy

Tarrant

Head of Policy & Government Relations

B&CE The People’s Pension

Angie

Kirkwood

Senior Manager - Industry Development

Scottish Widows

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Chris

Connelly

Principal Consultant

Aquila Heywood

Con

Keating

Head of Research

BrightonRock Group

Daniel

Godfrey

Non-Executive Director

Big Issue Invest Fund Management

Gayle

Schumacher

Retired

Former MD, Coutts

Graham

Cook

Portfolio Solutions

Macquarie Securities

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Henry

Tapper

Founder

Pension PlayPen

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

Iain

Cowell

Head of Investment Solutions, UK & Ireland

Allianz Global Investors

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Costs & Charges Team cont.

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Imran

Razvi

Public Policy Advisor

The Investment Association

James

Monk

Head of DC Investments

Aon Employee Benefits

JB

Beckett

Consulting Chief Investment Officer and Author

New Fund Order Consulting

John

Serocold

Principal

Studio Serocold

Jon

Parker

Director

Jonathan Parker Consulting Ltd

Julius

Pursaill

Pensions & Investment Consultant

Independent

Lucy

Forgie

Policy Adviser

ABI

Malcolm

Small

Managing Director

Lynecombe Consultancy

Mark

Proffitt

Head of Sales

Scorpeo UK Ltd.

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Martin

Palmer

Head of Corporate Funds Proposition

Zurich Financial Services

Michelle

Baddeley

Professor of Economics and Finance

University College London

Mike

Webb

Consultant

City Noble

Natalie

Winterfrost

Chair/Client Director

CFA Society, UK/Aberdeen Asset Management

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Niall

Ferguson

Consultant

Independent

Ralph

Frank

CEO DC (UK)

Cardano

Robin

Powell

Editor

The Evidence-Based Investor

Ronnie

Morgan

Strategic Insight Manager

Royal London

Saul

Djanogly

CEO

Best Interest Consultants

Shyam

Moorjani

Partner, Financial Services Consulting

RSM Tenon

Stephen

Bowles

Head of Institutional Defined Contributions

Schroders

Stephen

Budge

Principal

Mercer

Sunil

Chadda

Managing Director

Cairn Consulting Ltd

Tim

Sharp

Economic and Social Affairs Department

TUC

Tim

Walton

Manager, Data Research and Analysis

Morningstar

Tim

Brown

Head of Consultant Relations

Dimensional Fund Advisors

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Who’s in the Data Team? First Name

Last Name

Job Title

Organisation

Andy

Agathangelou

Founding Chair

Transparency Task Force

Chris

Connelly

Principal Consultant

Aquila Heywood

Chris

Barrow

Christopher

Squirrel

Founder and CEO

Sciurus Analytics

Con

Keating

Head of Research

BrightonRock Group

David

Rich

CEO

Accurate Data Services

Elizabeth

Campbell-Warner

Managing Director

Gabriel Research & Management

Gerry

Wright

Partner

Smith & Williamson Investment Management LLP

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

James

Singer

Senior Associate

P-Solve

John

Simmonds

Principal

CEM Benchmarking Inc

Margaret

Snowdon

Chairman

Pensions Administration Standards Association

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Nick

Fleming

Market Development Manager

British Standards Institute

Nils

Johnson

Co-Founder and Director

Spence Johnson Limited

Shaul

David

Fin Tech Sector Specialist

UKTI Financial Services Organisation

Stewart

Bevan

Product Manager Benchmarking

KAS BANK

Sunil

Chadda

Managing Director

Cairn Consulting Ltd

Tim

Walton

Manager, Data Research and Analysis

Morningstar

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Scorpeo UK Ltd.

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Who’s in the Rational Decision-Making Team? First Name

Last Name

Job Title

Organisation

Alan

Salamon

Managing Director

Corpias

Andy

Agathangelou

Founding Chair

Transparency Task Force

Con

Keating

Head of Research

BrightonRock Group

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Henry

Tapper

Founder

Pension PlayPen

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

Jackie

Beard

Director of Manager Research Services EMEA

Morningstar Europe Ltd

James

Meenan

CEO

JNM Investment Governance

Mark

Miller

Employee Benefit Consultant

Barclays Corporate & Employer Solutions

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Neil

Latham

Consultant

Independent

Philip

Brown

Head of Policy

LV

Rachel

Haworth

Policy Officer

ShareAction

Saul

Djanogly

CEO

Best Interest Consultants

Steve

Cave

Associate Director

Smith & Williamson

Tessa

Page

FIA, Principal

Mercer

Tim

Middleton

Technical Consultant

Pensions Management Institute

We are seeking new members in all of our teams. To learn more about each team’s focus and to express interest in getting involved please email andy.agathangelou@transparencytaskforce.org

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Who’s in the Stewardship Team? First Name

Last Name

Job Title

Organisation

Andy

Agathangelou

Founding Chair

Transparency Task Force

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Anna

Walton

Principal Consultant

Energised Environments Limited

Barry

Mack

Client Director

Muse Advisory

Con

Keating

Head of Research

BrightonRock Group

David

Weeks

Committee Member

Association of Member Nominated Trustees (AMNT)

Emma

Craig

Marketing Specialist

KAS BANK N.V.

Iuliia

Shpak

PhD Researcher in Finance/ Systematic Strategies

University of East London/Sarasin & Partners

Janice

Lambert

Pensions Consultant

Independent

Joshua

Card

Chief Executive Officer

Kukua

Judith

Donnelly

Partner

Squire Patton Boggs

Julia

Dreblow

Founder

sriServices and Fund EcoMarket

Luke

Hildyard

Policy Lead - Stewardship and Corporate Governance

PLSA

Michael

Kemp

Senior Pensions Technician

Pinsent Masons LLP

Nick

Fleming

Market Development Manager

British Standards Institute

Olivia

Seddon-Daines

Senior Research Analyst

ET Index

Paul

Lee

Head of Corporate Governance

Aberdeen Asset Management

Paul

Marsland

Deputy Director

High Pay Centre

Paul

Hewitt

Senior Development Manager

Vigeo Eiris

Rachel

Haworth

Policy Officer

ShareAction

Sarah

Hutchinson

Consultant

SJ Hutchinson Ltd

Sarah

Wilson

Chief Executive

Manifest

Sebastian

Reger

Partner

Sackers

Terry

Ritchie

Development Director

Trustee Solutions Ltd

Valborg

Lie

Director

Borg Consulting

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Who’s in the International Best Practice Team? First Name

Last Name

Job Title

Organisation

Country

Andy

Agathangelou

Founding Chair

Transparency Task Force

UK

Alex

Mazer

Founding Partner

Common Wealth

Canada

Amy

Auster

Executive Director

Australian Centre for Finacial Services

Australia

Andy

Tarrant

Head of Policy & Government Relations

B&CE The People’s Pension

UK

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

UK

Chris

Tobe

Investment Consultant

Stable Value Consultants

USA

Con

Keating

Head of Research

BrightonRock Group

UK

Dana

Muir

Professor

University of Michigan’s Ross School of Business

USA

David

Knox

Senior Partner

Mercer

Australia

Elias

Westerdahl

Sustainable Business Analyst

The Centre for Synchronous Leadership

UK

Eric

Veldpaus

Strategy Director

Novarca Group

Holland

Eric

Plunkett

Owner

Redbrucke

UK

Erik

Conley

Founder

ZenInvestor

USA

Felix

Mezzanotte

Asst. Prof. Co-Team Ldr of Acct. & Law

The Hong Kong Polytechnic University

Hong Kong

Frits

Meerdink

Manager Fund Management

PGGM Investments

Holland

Graham

Wrightson

Partner

Stephenson Harwood LLP

UK

Heinz-Dietrich

Steinmeyer

Professor of Law, Director of the Institute for Labour Law, Social Law and Business Law

University of Muenster

Germany

Ian

Fryer

Head of Research

Chant West

Australia

Imran

Razvi

Public Policy Advisor

The Investment Association

UK

James

Meenan

CEO

JNM Investment Governance

Ireland

Janice

Lambert

Pensions Consultant

Independent

UK

Jerry

Moriarty

CEO

Irish Association of Pension Funds

Ireland

Jon

Lukomnik

Executive Director

IRCC Institute

USA

Jonathan

Hall

Head of Financial Services

Aquila

UK

Juan

Zuluaga

Mikael

Nyman

Editor in Chief

Exakt Media

Sweden

Nicholas

Morris

Visiting Fellow

The Martin School, Oxford

Australia

Nicholas

Firzli

Director-General

World Pensions Council

France

Nikki

Gwilliam-Beeharee

Food and Health Research Manager

Vigeo

France

Paul

Secunda

Professor of Law and Director, Labor and Employment Law Program

Marquette University Law School

USA

Rosalie

Degabriele

Academic Finance Superannuation & Banking

University of Technology

Australia

Richard

Field

Director

Institute for Financial Transparency

USA

Steve

Kenzie

Executive Director

UN Global Compact Network UK

UK

SV

Rangan

Senior Executive

AIG

UK

Tomas

Wijffels

Policy Advisor

Federation of Dutch Pension Schemes

Holland

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The Transparency Times | www.transparencytaskforce.org | August 2016 | Edition #4


ABOUT TRANSPARENCY STATEMENTS Transparency Statements are a great way to show your support for our international campaign and to align your organisation with our intention to encourage greater transparency in financial services, right around the world. We believe that higher levels of transparency are a pre-requisite for fairer, safer and more efficient markets that deliver better value for money and better outcomes for consumers. Furthermore, because of the correlation between transparency and trustworthiness we believe our work will also have a positive impact on the reputation of the financial services market as a whole.

please complete the sentence:

That’s good news for all market participants and all governments, because the world needs a financial services sector that is trustworthy.

and email it to

To provide your transparency statement

Thank you very much indeed

“I believe there ought to be higher levels of transparency in financial services because..........................................................”

andy.agathangelou@ transparencytaskforce.org

Tom Tugendhat | Member of Parliament for Tonbridge, Edenbridge and Malling

“I believe there ought to be higher levels of transparency in financial services because it is the only way that markets can function without distortion to the benefit of the true customer, the individual.”

Angela Rayner | Former Shadow Pensions Minister, now Shadow Secretary of State for Education and Shadow Minister for Women and Equalities Frank Whiffen Head of Strategic Business Development | Ferrier Pearce

“I believe there ought to be higher levels of transparency in financial services because pension funds should be run with a constant eye on efficiency – every penny should be accounted for therefore costs must be transparent and easy to understand – they must be explainable without jargon. The duty is to pay pensions and ensure that the sponsoring employers enjoy the benefits of reduced costs, we must avoid funds entering the Pension Protection Fund, it should be the last option”. “I believe there ought to be higher levels of transparency in financial services because this will enable better decision making. In turn, this should be communicated in an engaging way so that sensible and informal decisions can be made.”

Phil Ninness Business Development Manager | Accurate Data Services

“I believe there ought to be higher levels of transparency in financial services because consumers are obtaining different views and news and there is a trust issue. People need honesty in plain english.”

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TRANSPARENCY STATEMENTS JB Beckett Author #NewFundOrder | New Fund Order, Assoc. of Professional Fund Investors

"I believe there ought to be higher levels of transparency in financial services because optimum economic value has become remote and distorted and by virtue active fund management and professional fund buyers fragile to digitalisation”

Dan Norman CEO | TCF Investment

“I believe there ought to be higher levels of transparency in financial services because the money belongs to the consumer and they need to be given the best chance of making their money work harder so they don’t have to.”

Pauline Skypala Journalist | Freelance

“I believe there ought to be higher levels of transparency in financial services because it is impossible to make competent investment decisions and fund manager choices without being in full possesion of all the relevant information. Costs are foremost in this as future investment performance is unknown.”

Julia Dreblow Founding Director | SRI Services

“I believe there ought to be higher levels of transparency in financial services because it is the best way to make sure that people get what they want through enhancing trust; an aspect that is desperately low in our industry.”

Judith Donnelly Partner | Squire Patton Boggs

“I believe there ought to be higher levels of transparency in financial services because pension funds and other institutional investors can only comply with their legal obligations to make informed decisions if they are able to access all relevant information”.

David Clark Director and Chairman Executive Committee | The Institute for Global Financial Integrity

“I believe there ought to be higher levels of transparency in financial services because without transparency investors lack the confidence to invest and markets fail to fulfil their true function of allocating capital efficiently”.

Angie Kirkwood Senior Manager Industry Development | Scottish Widows Chris Connelly Principal Consultant | Aquila Heywood

“I believe there ought to be higher levels of transparency in financial services because that is the only way we are going to gain the trust of our customers and allow us to simplify the way we talk to and engage those customers in making the decisions which will give them the best outcomes in their financial planning” “I believe there ought to be higher levels of transparency in financial services because we look after other people’s money and therefore their futures. It’s as simple as that”.

Robin Powell Editor | The Evidence-Based Investor

“I believe there ought to be higher levels of transparency in financial services because without it investors are unable to work out how much they’re paying and how much (or more to the point how little) value fund managers are adding to the investment process”.

Terence Prideaux Managing Director | Morley Hall

“I believe there ought to be higher levels of transparency in financial services because the aspirations of savers and their advisors will not be met if managers take more than headline fees and trust in the financial system will not be won”.

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Elizabeth Campbell-Warner Co-Founding Director - Head of Strategy & Research | Gabriel Research & Management Ltd John Greenwood Editor | Corporate Adviser

“I believe there ought to be higher levels of transparency in financial services because transparency is a prerequisite to building trust and trust is essential to the development of a healthy, sustainable financial services industry and the consumers it serves”

“I believe there ought to be higher levels of transparency in financial services because opacity is to journalists what a red rag is to a bull. As long as things are hidden, trust in the industry will remain low.”

Martin Palmer Head of Corporate Funds Proposition | Zurich

“I believe there ought to be higher levels of transparency in financial services because it will help to provide a level playing field as well as helping to restore trust and confidence amongst consumers that they are receiving value for money. This is particularly important at a time when increasing consumer engagement and understanding is so critical”. Bryan Beeston “I believe there ought to be higher levels of transparency in Director | financial services because transparency builds trust, and all ITM Limited consumers and market participants will benefit from improved clarity and thereby increased levels of understanding enjoyed by the end customer”. Olivia Seddon-Daines “I believe there ought to be higher levels of transparency in finanSenior Research Analyst | cial services because I am concerned that the everyday pension ET Index saver is embroiled in a system which charges fees at every turn, which invests in volatile markets that do not price in carbon risk, and, most importantly, that has proven itself unable/unwilling to accept ownership of endemic risks to the system, and the knockon effects to the real economy”. Jon Parker “I believe there ought to be higher levels of transparency in CEO | financial services because without it, customers will simply Jonathan Parker continue to mistrust the industry and lose out financially. However, Consulting we would be wise to remember that more information and data can itself be a hindrance to improving outcomes”. Nicholas Morris “I believe there ought to be higher levels of transparency in finanAcademic Visitor | cial services because financial services are key to our economy St Anthony’s College, and society, and transparency is necessary to encourage trustworOxford thy behaviour by financial services professionals. It is important that we define their obligations and responsibilities clearly, and then hold the industry and those who work within it to account.” Shyam Moorjani “I believe there ought to be higher levels of transparency in Partner | financial services because pension scheme members are entitled RSM to know the full cost, including all transactions, for the administration and investment of their money. Transparency will also allow benchmarking and informed comparisons to allow investors to make informed and better investing decisions and to enable them to improve outcomes to reach their financial goals.” Edition #4

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TRANSPARENCY STATEMENTS Matthijs Verweij BD Mgr, Pensions | KAS BANK N.V. Ralph Frank CEO - DC (UK) | Cardano Sunil Chadda Managing Director | Cairn Consulting Ltd William Goodhart Chief Executive | CFA Society of the UK

Stewart Bevan UK Product Manager | KAS BANK N.V. Iuliia Shpak PhD Candidate Financial Economics/ Asset Pricing | University of East London Colin Meech National Officer | UNISON - Capital Stewardship Programme Anita Skipper Senior Analyst Corporate Governance | Aviva Investors

“I believe there ought to be higher levels of transparency in financial services because more transparency leads to better governance and in control management of pension schemes in all aspects”. “I believe there ought to be higher levels of transparency in financial services because users of our services should be able to understand what is being done for them and the corresponding charges being levied”. “I believe there ought to be higher levels of transparency in financial services because every customer has the right to know exactly how much goods and services cost at the point of purchase” “I believe there ought to be higher levels of transparency in financial services because it contributes to the establishment of trust which can improve consumer outcomes. To date, the focus has been on costs and performance, but the investment profession and its stakeholders would also benefit from an improved understanding of the purpose of investment and from the processes employed on their behalf.” “I believe there ought to be higher levels of transparency in financial services because stakeholders deserve to have access to the right information, to inform the best levels of decision-making and improve outcomes”. “I believe there ought to be higher levels of transparency in financial services because Transparency is critical for investor confidence and trust in financial markets”

“I believe there ought to be higher levels of transparency in financial services because Pension scheme members should know how much it costs to be a member of their scheme. The full cost, including all transactions, for the administration and investment of their money”. “I believe there ought to be higher levels of transparency in financial services because it is only through transparency that we can gain the trust required to succeed.”

Rachel Haworth Policy Officer | ShareAction

“I believe there ought to be higher levels of transparency in financial services because ensuring institutional investors are directly accountable to the people whose money they look after is the only way to transform the system into one that serves savers, society and the environment”. Henrik Wolff-Petersen “I believe there ought to be higher levels of transparency in finanDirector and Co-Founder | cial services because for being able to take rational decisions we Panda Connect need to have control of our data; independantly, timely and complete.”

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Stephanie Baxter News Editor | Professional Pensions

“I believe there ought to be higher levels of transparency in financial services because we need to tackle unnecessarily high charges and ensure investors get value for money. This is integral to giving people the best possible retirement outcomes.”

Nils Johnson “I believe there ought to be higher levels of transparency in Co-Founder and Director | financial services because it is good for business. Confidence, Spence Johnson Ltd efficiency, growth and profitability are all enhanced – over the long term – by greater transparency”. Andy Agathangelou “I believe there ought to be higher levels of transparency in finanFounding Chair | cial services because it holds the key to regaining the trust of the Transparency Task Force consumer, delivering value-for-money and operating a competitive market”. Jonny Paul “I believe there ought to be higher levels of transparency in Freelance Journalist financial services because financial advice is still generally seen as the preserve of the wealthy and post-crisis there is still much distrust. So I believe that a campaign from within that homes in on greater transparency, focusing more on consumer outcomes, that does not stem from the regulators is a powerful way to show intent”. Henrik Pedersen “I believe there ought to be higher levels of transparency in finanManaging Partner, cial services because it will be good for everyone. Consumers will Co-Founder | be able to compare and demand better value for money and the CLERUS LLP financial services industry itself will benefit from becoming more competitive, lean and effective”. John Belgrove “I believe there ought to be higher levels of transparency in finanSenior Partner | cial services because consumers and clients need to trust the Aon Hewitt industry through having access to clear, open, honest, jargon-free information in order to make informed choices to meet their financial objectives.” Alexander Adamou “I believe there ought to be higher levels of transparency in finanFellow | cial services because financial markets are social constructs and London financial services are a public good” Mathematical Laboratory Anthony Filbin “I believe there ought to be higher levels of transparency in finanChairman | cial services because it will have such a beneficial impact upon Capital Cranfield Trustees incomes in retirement”. Adrian Holliday Reporter | Freelance

“I believe there ought to be higher levels of transparency in financial services because millions of consumers are reliant on it for their longterm savings future.”

David Weeks Co-Chair | AMNT

“I believe there ought to be higher levels of transparency in financial services because in times ahead, we must encourage people to save more in their working lives. We want them to be able to fund themselves for increasing numbers of retirement years. To do this, we must deliver, and be seen to deliver, prudent and open costs and charges”.

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RECOMMENDED READING This section is for academics and authors to advertise (without cost) their relevant books, white papers, academic articles, research findings and so on, so that all our members can know about the thought-leadership, considered opinion and analysis that is available through their work. If you would like to submit a piece of your own work, or the work of another that you would recommend to our members, please get in touch through: andy.agathangelou@transparencytaskforce.org

“What They Do With Your Money; How the Financial System Fails Us and How to Fix It” Each year we pay billions in fees to those who run our financial system. The money comes from our bank accounts, our pensions, our borrowing, and often we aren’t told that the money has been taken. These billions may be justified if the finance industry does a good job, but as this book shows, it too often fails us. Financial institutions regularly place their business interests first, charging for advice that does nothing to improve performance, employing short-term buying strategies that are corrosive to building long-term value, and sometimes even concealing both their practices and their investment strategies from investors. In their previous prizewinning book, The New Capitalists, the authors demonstrated how ordinary people are working together to demand accountability from even the most powerful corporations. Here they explain how a tyranny of errant expertise, naive regulation, and a misreading of economics combine to impose a huge stealth tax on our savings and our economies.

By David Pitt-Watson, Stephen Davis and Jon Lukomnik, will be published in June. To find out more, visit: http://yalebooks.co.uk/display.asp?K=9780300194418

“Swimming with Sharks: My Journey into the World of the Bankers” Joris Luyendijk, an investigative journalist, knew as much about banking as the average person: almost nothing. Bankers, he thought, were ruthless, competitive, bonus-obsessed sharks, irrelevant to his life. And then he was assigned to investigate the financial sector. Joris immersed himself in the City for a few years, speaking to over 200 people - from the competitive investment bankers and elite hedge-fund managers to downtrodden back-office staff, reviled HR managers and those made redundant in the regular ‘culls’. Breaking the strictly imposed code of secrecy and silence, these insiders talked to Joris about what they actually do all day, how they see themselves and what makes them tick. They opened up about the toxic hiring and firing culture. They confessed to being overwhelmed by technological and mathematical opacity. They admitted that when Lehman Brothers went down in 2008 they hoarded food, put their money in gold and prepared to evacuate their children to the countryside. They agreed that nothing has changed since the crash. Joris had a chilling realisation. What if the bankers themselves aren’t the real enemy? What if the truth about global finance is more sinister than that?

By Joris Luyendijk. To find out more, visit: https://www.amazon.co.uk/Swimming-Sharks-Journey-World-Bankers/dp/1783350644?ie=UTF8&*Version*=1&*entries*=0

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“Capital Failure: Rebuilding Trust in Financial Services” Adam Smith’s ‘invisible hand’ relied on the self-interest of individuals to produce good outcomes. Economists’ belief in efficient markets took this idea further by assuming that all individuals are selfish. This belief underpinned financial deregulation, and the theories on incentives and performance which supported it. However, although Adam Smith argued that although individuals may be self-interested, he argued that they also have otherregarding motivations, including a desire for the approbation of others. This book argues that the trust-intensive nature of financial services makes it essential to cultivate such other-regarding motivations, and it provides proposals on how this might be done.

By Nicholas Morris and David Vines.To find out more, visit: https://www.amazon.co.uk/Capital-Failure-Rebuilding-Financial-Services/dp/0198712227

“#New Fund Order - A Digital Death For Fund Selection?” Safe within its bubble, the City’s asset management industry has existed largely unchanged for over 20 years but no longer. A new digital threat lurks in the shadows. Target assigned, Jon Beckett (‘JB’) hunts down the value chain between fund buyers and fund managers and tackles the difficult issues head-on. Get inside the head of one of the UK’s most controversial investment gatekeepers. Think differently about buying funds, multi-manager and the way the industry works. A digital survival guide (of sorts) for anyone working in the fund and wealth industry. Wet work, it’s a dirty business!

By JB Beckett. To find out more, visit: http://www.amazon.com/NEW-FUND-ORDER-JB-Beckett/dp/1320639259

“Towards a New Pension Settlement” This volume presents the recent experiences of pension reform in seven countries: Australia, Canada, Germany, Netherlands, Poland, Sweden and the United Kingdom. Faced with common problems of ageing societies and constraints on taxation levels, all are increasingly passing responsibility for saving for retirement to citizens. However, there is enormous variety between countries in the degree to which the state intervenes to mitigate the risks which the individual can face in saving for a pension.

By Gregg McClymont and Andy Tarrant. To find out more, visit: https://www.amazon.co.uk/Towards-New-Pensions-Settlement-International-ebook/dp/B01EYRKJCS/ref=sr_1_1?ie=UTF8&qid=1462913044&sr=8-1&keywords=gregg+mcclymont Edition #4

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RECOMMENDED READING Transparency Games: How bankers rig the world of finance This is the story of how bankers with help from the members of Wall Street’s Opacity Protection Team (this includes politicians, economists, think-tanks, rating firms, investment charter constrained asset managers and the financial regulators) undermined the global financial system by reintroducing opacity. The result of reintroducing opacity was the worse financial crisis since the Great Depression and the slowest economic recovery. Transparency Games is about the bankers of Wall Street and the City of London creating and maintaining a veil of opacity to hide behind as they rig the global financial markets for their benefit. Their bad behavior isn’t constrained to simply misrepresenting financial products like toxic subprime mortgage-backed securities, but includes rigging the global interest rate, foreign exchange, commodity and equity markets so the bankers’ bets pay off.

By Richard G. Field. To find out more, visit: https://www.amazon.com/Transparency-Games-bankers-world-finance/dp/0990396819

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THE DIRECTORY OF PRO-TRANSPARENCY ORGANISATIONS If you lead a pro-transparency organisation you can speak out and advertise in The Directory of Pro-Transparency Organisations. This is an important initiative because the market needs to know that there are many organisations that see transparency as a commercial virtue, and do not fear it as a threat. We are happy to consider different classifications to those shown. All enquiries about advertising in the Directory to: Transparency Task Force Ltd, andy.agathangelou@transparencytaskforce.org +44 (0) 7501 460308

FIDUCIARY MANAGERS: Ralph Frank, CEO DC (UK) | Cardano E-mail: info@cardano.com Website: www.cardano.com Telephone: +44 (0)20 3170 5910

Is this also the right classification for you? Cardano was founded in 2000 and now has over 150 staff with backgrounds in the areas of risk management, investment management, research, actuarial and investment advisory. Cardano studies the causes and impact of risk and costs in order to significantly improve financial performance and resilience. We currently provide Investment Advisory or Fiduciary Management services to over 1.3m pension fund beneficiaries with assets totalling over £120bn.

PENSION ADMINISTRATION: Margaret Snowdon OBE, Chairman | Pensions Administration Standards Association E-mail: info@pasa-uk.com Website: http://www.pasa-uk.com/ Mobile: 07983 565955

Is this also the right classification for you? The Pensions Administration Standards Association (PASA) is a not-for-profit organisation which acts as a focal point to engage with industry and government on pensions administration matters. It was created to provide an independent infrastructure to set, develop, and provide guidance on pensions administration standards. It is an independent accreditation body, assessing the achievement of good pension administration standards by schemes and providers.

ACADEMIC INSTITUTIONS: Prof. Dr. Heinz-Dietrich Steinmeyer University of Muenster / Germany School of Law Universitätsstrasse 14-16D-48143 Muenster Phone 49-251-8329744 Mobile 49-171-8384816 Mail: steinmeyer@uni-muenster.de

Is this also the right classification for you? I am a professor for Social Security Law, Labour Law and Civil Law at the University of Muenster Law School. My special field is pensions – occupational/ supplementary pensions as well as public pensions. I am doing consulting work nationally and internationally including international organizations (EU etc.). I am the Chairman of the European Network for Research on Supplementary Pensions.

INVESTMENT GOVERNANCE CONSULTANTS:

Also right for you?

Henrik Pedersen, Managing Partner & Co-Founder | Clerus LLP E-mail: henrik.pedersen@clerus.co.uk Website: http://www.clerus.co.uk/ Telephone: +44 20 3356 2845 Mobile: +44 7767 656234

We partner with pension schemes and other asset owners to review and improve investment decisions, governance and value-for-money, through independent and informed investment analysis. As a result, investment outcomes can be improved without the need to change service providers or taking on more investment risk. We offer a free initial assessment, so why not try us out?

James N Meenan, Principal | JNM Investment Governance E-mail: james@jnmresearch.com Website: www.jnmresearch.com Telephone: +353 (0)1 687 1027 Mobile: +353 (0)86 257 2646

JNM Investment Governance gives trustees independent coaching and support to develop strategies and techniques to stem the overwhelming resource handicap they face in discussions with investment professionals. JNM’s objective is to facilitate a constructive two way dialogue with attendant benefits for all parties.

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THE DIRECTORY OF PRO-TRANSPARENCY ORGANISATIONS DATA SERVICES: David Rich MIod, CEO | Accurate Data Services E-mail: david.rich@accuratedata.co.uk Website: http://www.accuratedata.co.uk/ Telephone: 01603 813366w Mobile: 07919918623

Is this the right classification for you? David is Chief Executive of Accurate Data Services, a specialist data quality and positive people tracing business that is focused on unclaimed assets in the financial service sectors. ADS traces lost members, clients and policy holders for a variety of organisations including Life and Pensions funds, Banks and Asset Managers. The goal is to help businesses reunite their customers / members with their assets and deliver positive consumer outcomes. David is an active campaigner for transparency and action around the large unclaimed assets issues present in the UK.

INVESTMENT CONSULTANTS: FINANCIAL PLANNERS:

Is this the right classification for you? Is this the right classification for you?

WEALTH MANAGERS:

Is this the right classification for you?

ACTUARIES:

Is this the right classification for you?

PENSION SCHEME PROVIDERS:

Is this the right classification for you?

PENSION SCHEME SELECTION EXPERTS:

Right for you?

ASSET MANAGERS:

Is this the right classification for you?

PENSION SCHEME CONSULTANTS

Is this the right classification for you?

RESEARCH ORGANISATIONS:

Is this the right classification for you?

INSURANCE COMPANIES:

Is this the right classification for you?

BANKS:

Is this the right classification for you?

REGULATORS AND GOVERNMENT DEPARTMENTS: TRADE UNIONS:

Is this the right classification for you?

TRADE BODIES:

Is this the right classification for you?

CAMPAIGN GROUPS:

Is this the right classification for you?

PENSION SCHEME COST REDUCTION CONULTANTS CONSULTING ACTUARIES: 58

Is this the right classification for you?

The Transparency Times | www.transparencytaskforce.org | August 2016 | Edition #4


ANALYTICS ORGANISATIONS:

Is this the right classification for you?

PR FIRMS:

Is this the right classification for you?

EMPLOYEE BENEFIT CONSULTANTS:

Is this the right classification for you?

BENCHMARKING CONSULTANTS:

Is this the right classification for you?

INDEX PROVIDERS:

Is this the right classification for you?

HEDGE FUNDS:

Is this the right classification for you?

PRIVATE EQUITY:

Is this the right classification for you?

PUBLISHERS AND PUBLICATIONS:

Is this the right classification for you?

INDEPENDENT TRUSTEES:

Is this the right classification for you?

EMPLOYER COVENANT CONSULTANTS: POLITICAL PARTIES:

Is this the right classification for you?

DATA SERVICES:

Is this the right classification for you?

BUILDING SOCIETIES:

Is this the right classification for you?

COMMUNICATION CONSULTANCIES:

Is this the right classification for you?

CUSTODIANS:

Is this the right classification for you?

LAWYERS:

Is this the right classification for you?

GOVERNANCE CONSULTANTS:

Is this the right classification for you?

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The Transparency Times Edition #4 August 2016  

This is a special 'monster edition', containing responses to the Investment Association's recent claim: “The report finds zero evidence tha...