Ahead of their provisional conclusions in July 2018 and final decisions in March 2019, the Competition and Markets Authority (CMA) are releasing working papers on key issues. The CMA will use the working papers to share its emerging thinking for remedies if it concludes the issue in question requires action.
This article covers our thoughts on the first two working papers, which covered "information on fees and quality” and “asset manager product recommendations”.
To quote the CMA’s overview of emerging findings (and with our emphasis):
"… competitive processes are not providing customers [trustees] with the necessary information to judge the value for money of investment consultants and fiduciary managers. The potential competition concern with this is that customers are not well-equipped to choose… and in turn drive competition ...".
Possible remedies include much greater standardisation for tenders and associated questions on fees, performance and service quality metrics. We would support much of this, to help trustees better compare and assess the answers they receive in tenders, and so choose providers with greater certainty.
Again, emerging findings with our emphasis: "We have found no evidence to date that, net of asset management fees:
This largely corroborates the earlier Financial Conduct Authority (“FCA”) analysis (which helped prompt the CMA review itself), although that study failed to find outperformance even before fees. The CMA analysis focuses on public markets where benchmark returns are available. It ignores private market strategies like direct lending (which we support and where low level active management is a necessary component).
The results do not surprise us and in fact support our long standing philosophy for pension fund investment:
Going forward, we are awating a new working paper on a weekly basis. By time of publishing, we may have received the CMA’s thoughts on market concentration and conflicts in FM, which will surely make interesting reading.