Novarca Communication of asset management costs
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A presentation delivered to the Transparency task force which helps us to understand not just what we are paying for asset management but what we are getting for our money
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Novarca Communication of asset management costs
- 1. Communication of asset management costs How to explain costs levels of asset management to stakeholders April, 20th 2016 Eric Veldpaus
- 2. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 2 2Š April 2016
- 3. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 3 3Š April 2016
- 4. Page 4 Dutch landscape of Pension Funds ⢠85% of employees is a member of a Pension Fund ⢠70 large pension funds for specific branches of industry such as government employees (ABP, with up to ⏠356 billion AuM and health care employees (⏠166 billion AuM) ⢠Approximately 300 smaller company Pension Funds ⢠Mostly Defined Benefit contracts, but risk sharing between employers, employees and pensioners ⢠Specific framework set by Dutch Central Bank (DCB) ⢠Necessarily to hedge interest ⢠Limits with regard to asset allocation ⢠Influence of currencies ⢠Obligations with regard to information to stakeholders 1.Introduction 4Š April 2016
- 5. Pension Fund industry: roles and responsibilities ⢠Board of trustees includes social partners ⢠Fiduciary managers / service-providers ⢠Asset managers ⢠Federation of Dutch Pension funds ⢠Regulatory landscape (AFM, DCB) Page 5 5Š April 2016
- 6. Responsibilities Board of Trustees with regard to costs ⢠The Board is responsible for costs and cost reporting ⢠Organize adequate reporting of costs by their asset managers and / or service-providers ⢠Disclose costs (taking complexity into account) Page 6 6Š April 2016
- 7. Recommendations ⢠Report the costs related to pension management in euros per member. The number of members is the sum of active members and pensioners. ⢠Report the asset management costs as a percentage of the average asset under management. In addition, review these costs in relation to: ⢠The investment mix selected and the associated benchmark costs ⢠Long term return ⢠On a separate basis, report the transaction fees as a percentage of the average assets under management. Page 7 7Š April 2016
- 8. Implementation results ⢠High compliance rates to the Recommendations. 96% of funds report pension management costs, 95% asset management costs and 77% transaction costs (2014). ⢠Increase in cost comparability between funds. ⢠Regulator and supervisor use Recommendations in law and regulations. ⢠Transparency leads to media attention, questions from Page 8 8Š April 2016 Source: Federation of Dutch Pension Funds, February 3rd, 2016
- 9. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 9 9Š April 2016
- 10. 10Š April 2016 Source: Pensioen Pro Nr. 07 Asset management costs 2014 Top 15 highest costs(bp) Top 15 lowest costs(bp)
- 11. ⢠Compare cost level with other pension funds? ⢠Asset management costs compared to peer group? ⢠How to explain to stakeholders? ⢠Comparing apples to oranges ? Š April 2016 11 How to explain?
- 12. Risks, return and costs Costs ⢠Risk and return are central issues; costs follow from these. ⢠Do not look at the costs separately, but always in relation to return and risks. Return (asset allocation) Risks Page 12
- 13. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 13 13Š April 2016
- 14. Pf. A Pf B. Gemiddelde vermogensbeheerkosten sector : 53 bps IBI Benchmark 17 79 Asset management costs (in bps) 22 70 ⢠Aandelen 35% 50% ⢠Vastrentende waarden 60% 30% ⢠Alternatieve beleggingen 5% 20% Netto rendement verslagjaar (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocatie Index 85 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 14 Which pension fund do you prefer? Waarvan prestatie gerelateerde vergoedingen 0 20 Waarvan excess rendement 0 100 Waarvan excess rendement 10 250
- 15. Pf. A Pf B. Average management costs of the Dutch pension fund industry 53 bps.mark 17 79 Asset management costs (in bps) 22 70 ⢠Aandelen 35% 50% ⢠Vastrentende waarden 60% 30% ⢠Alternatieve beleggingen 5% 20% Netto rendement verslagjaar (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocatie Index 85 125 15 110 IBI Implementatie Index 115 85 Š April 2016 15 Average costs as a norm? Waarvan prestatie gerelateerde vergoedingen 0 20 Waarvan excess rendement 0 100 Waarvan excess rendement 10 250
- 16. Pf. A Pf B. Average management costs of the Dutch pension fund industry 53 bps IBI Benchmark 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed income assets 60% 30% ⢠Alternative investments 5% 20% Netto rendement verslagjaar (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 16 Asset allocation important cost driver Waarvan prestatie gerelateerde vergoedingen 0 20 Waarvan excess rendement 0 100 Waarvan excess rendement 10 250 Takes differences in asset allocation into account
- 17. Pf. A Pf B. Average management costs of the Dutch pension fund industry : 53 bps Benchmark costs 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed income 60% 30% ⢠Alternative investments 5% 20% Netto rendement verslagjaar (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 17 Use benchmark costs as the reference Waarvan prestatie gerelateerde vergoedingen 0 20 Waarvan excess rendement 0 100 Waarvan excess rendement 10 250
- 18. Pf. A Pf B. Gemiddelde vermogensbeheerkosten sector : 53 bps Benchmark costs 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed Income 60% 30% ⢠Alternative investments 5% 20% Nett return (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 18 Cost in relation to return Waarvan prestatie gerelateerde vergoedingen 0 20 Waarvan excess rendement 0 100 Waarvan excess rendement 10 250
- 19. Pf. A Pf B. Gemiddelde vermogensbeheerkosten sector : 53 bps Benchmark costs 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed income 60% 30% ⢠Alternative investments 5% 20% Net return (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 19 Active / passive management Including performance related costs 0 20 Including excess return 0 100 Waarvan excess rendement 10 250 Takes differences of active / passive management into account
- 20. Pf. A Pf B. Gemiddelde vermogensbeheerkosten sector : 53 bps Benchmark costs 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed income 60% 30% ⢠Alternative investments 5% 20% Net return (in bps.) 500 1.000 Gemiddeld netto rendement afgelopen 3 jaar (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementatie Index 115 85 Š April 2016 20 Hedging interest important for return Including performance related fees 0 20 Including excess rendement 0 100 Waarvan excess rendement 10 250 Including return interest hedge 200 150
- 21. Pf. A Pf B. Benchmark costs 17 79 Asset management costs (in bps) 22 70 ⢠Equity 35% 50% ⢠Fixed income 60% 30% ⢠Alternative investments 5% 20% Net return (in bps.) 500 1.000 Average netto return past 3 years (in bps.) 300 900 IBI Asset Allocation Index 80 125 IBI Alpha Index 15 110 IBI Implementation Index 115 85 Š April 2016 21 Interest hedge return past three years Including performance related fees 0 20 Including excess rendement 0 100 Including excess rendement 10 250 Including return interest hedge 200 150 Including return interest hedge 300 450
- 22. 22Š April 2016 Matrix Pf A Pf B Excl. performance related costs IBI Asset Allocation Index vs cost of policy mix IBI Asset Allocation Index vs cost of policy mix IBIAssetAllocationIndexvscostofpolicymix Fund Peers Universe
- 23. IBI Transparency Index tm ⢠IBI developed a Transparency Index ⢠This index shows whether all asset management costs are disclosed ⢠Similarly for Pension administration costs Page 23 23Š April 2016 IBI Transparency Index vs asset management costs TransparencyIndex Fund Peers Universe Asset management costs
- 24. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 24 24Š April 2016
- 25. Best practice disclosure ? Page 25 25Š April 2016
- 26. Too much disclosure is unnecessary and confusing ⢠Use investment believes to explain the cost level; ⢠Avoid detailed tables with costs per asset category ď¨ next step is to explain that pension funds use different strategies; ⢠The disclosure of cost levels might even be confidential information agreed with asset managers and other service providers such as custodians. The board of directors : ⢠Is responsible for the implementation of the strategy agreed upon in the annual investment plan. ⢠They should receive relevant and detailed information and judge whether the costs are in line. ⢠Based upon this information they might decide to optimize costs. Page 26 26Š April 2016
- 27. Agenda 1. Introduction 2. Costs and press 3. An example 4. Best practice disclosure 5. Questions and contact Page 27 27Š April 2016
- 28. 28Š April 2016 Eric Veldpaus +31 20 208 8507 eric.veldpaus@institutionalbenchmarking.org Institutional Benchmarking Institute P +31 20 208 8555 F +31 20 208 8525 www.institutionalbenchmarking.org Questions?