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UK fiduciary management market grows by 40 per cent, says KPMG

The UK fiduciary management market continues to grow at double digit pace, currently comprising circa GBP23bn of UK pension scheme assets and across 174 UK pension scheme mandates, according to a survey by KPMG.

KPMG believes only full delegation mandates can unambiguously be defined as FM. In addition to the GBP23bn managed on a fully delegated basis there is another GBP30bn managed on a partly delegated basis across 120 mandates.

The fully delegated FM market has grown rapidly with a c. 40 per cent year-on-year growth rate and now comprises c. 2.4 per cent of total UK pension scheme assets.

Around 88 per cent of full delegation mandates are below GBP250m, with implemented consultancies managing c. 80 per cent of these appointments. There is a trend towards specialist providers and investment managers holding the larger mandates.

The use of an independent advisor or in-house capabilities post appointment of a FM is increasing, with 30 per cent of UK trustees engaged in full delegation FM using independent advisor or in-house capabilities to monitor, challenge and provide ongoing governance assistance.

Alex Koriath, head of fund manager research at KPMG says: “We do not see partial delegation as being consistent with how most observers would define fiduciary management. Instead, we see it as asset management services that range from multi-asset, fund-of-fund to multi manager strategies. These services are being performed in greater AUM sizes by many asset managers who rightly do not try to label them as fiduciary management.”

The full delegation market has grown increasingly quickly over recent periods, with a circa 40 per cent year-on-year growth rate. At current size, the full delegation market accounts for 2.4 per cent of the total UK pension scheme assets.

Within the full delegation FM market, around 88 per cent of all UK mandates are below GBP250m, with implemented consultants managing c. 80 per cent of these mandates. The number of multi-billion FM mandates in the UK is still low; with only three full delegation mandates greater than GBP1bn in the UK – all of which have been won via competitive tender.

Within larger fully delegated FM mandates, asset managers and specialist providers have a larger market share and seem to be more successful at winning clients. However, given the limited number of competitive selections, implemented consultancies still hold a majority market share in this market section as well.

As at June 2012, there were 120 partial delegation pension scheme mandates within the UK FM market with investment consultants holding c. 90 per cent of appointments and 80 per cent of market share. As with full delegation, this segment of the market has also grown strongly at a rate of c. 11 per cent year on year. Over half of this market is made up of single asset class mandates. KPMG notes that where strategic direction is not delegated, the distinction between partial FM and a more traditional multi asset or fund of fund products becomes harder to define.

Patrick McCoy, partner and head of investment advisory at KPMG in the UK, says: “It’s good to see the fiduciary market growing as it provides more choice for pension schemes.  This market growth has been dominated by the consultants converting their existing consulting client base.  From speaking to a lot of pension funds, I know they are keen to see evidence that the fiduciary model is working before considering it further and in particular which of the providers have been successful.  We have collected a lot of data on this and are hoping to be able to publish some useful findings shortly.”

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