Monthly Archives: September 2009

Ruth Sullivan

Old people crossing road hazard sign

Danger ahead

The prospect of living in poverty or at least in tightened circumstances in old age is not daunting British workers.

One in three people currently at work plan to rely on whatever the state provides when they retire, according to research carried out for Baring Asset Management.

Pauline Skypala

The arrival of really expensive funds in the Ucits space, notably those being launched by hedge fund managers, makes the funds run by traditional long-only managers look quite reasonable.

Sophia Grene

Hedge fund managers are often castigated for their high fees, while even traditional fund managers do not seem to think there is any advantage to offering lower-priced products than their neighbours. Although overcharging is never to be condoned, however, it may be in some cases that the consumer is simply not paying attention to what they are paying for their services.

This week I met some representatives from French independent asset manager Financiére de l’Echiquier, who conveyed a sense of their company as one that ticks all sorts of boxes as consistent, stable, responsible and a good employer.

This disarmed me slightly as I had planned to go in all guns blazing to attack them for what I thought were unconscionably high fund fees of 2.392 per cent a year. That’s fees alone – for comparison, in the UK, the average total expense ratio (fees plus expenses) is 1.7 per cent.

When I finally challenged them, instead of whipping off their friendly masks to reveal the evilly grinning features of Mammon-worshippers grinding the faces of the poor, they looked a bit surprised.

“But those fees are pretty much in line with the average,” was the response, followed by a thoughtful pause. “Do you know, that is the very first time anyone has ever asked about our fees.”

That is after all how capitalism works. You charge as high a price as the market will bear and the European fund market will still bear very high prices.

Ruth Sullivan

Pensions bonanza cancelled

Pensions bonanza cancelled

Now it’s official – the much trumpeted pension buy-out market has fallen flat. And just to spell it out, a report by Punter Southall called the False Dawn reveals that most (about 84 per cent) pension schemes trying to transfer liabilities to an insurer through a buy-out would find it cheaper to just adopt the same low-risk investment strategy an insurer would use.

Sophia Grene

Investing in solar panels this year generated a loss

Investing in solar power this year generated a loss

Investing in a climate change fund is usually seen to be a responsible thing to do, so surely offering a climate change fund is something a responsible investment manager might do.

Not according to RCM, a fund manager with a long track record in sustainable management and a very successful (in assset-gathering terms) Ecotrends product. It does not, however, offer a climate change fund, because of concern it does not make sense as an investment strategy.

Pauline Skypala

Pension saving is too expensive. According to a report from the Royal Society of Arts, up to 40 per cent of pension savings disappear in fees and costs under the UK’s current system of private pension provision.

Personal accounts, the national scheme to be rolled out in the UK from 2012, are designed to tackle this problem. People will be automatically enrolled into the scheme, removing the marketing and selling costs that have helped make personal pensions so expensive.

But the £3,600 annual limit on contributions to personal accounts is too low, says the RSA report.

Sophia Grene

Asset managers like to boast of their lovely cushiony profit margins, but their profitability is another matter entirely. According to a survey by SimCorp Strategy Lab, nearly half of investment management businesses are struggling to break even.

They calculate a cost rate by subtracting ebit (earnings before interest and tax) from gross revenue and expressing the result as a percentage of gross revenue. Less than 20 per cent managed to keep that cost rate below 85 per cent, while 41 per cent saw it rise to 99 per cent or above.

FTfm reports the results of the survey but we would like to know what you think. Is asset management industry really this difficult to make a profit in? Is this a reasonable way to think about profitability? And are investment managers really as clueless about cost control as the survey authors think?

Sophia Grene

Genghis Khan

Genghis Khan

As many as half of Mongolia’s 2.7m people rely either on mining or agriculture for a living. Even the most basic economics will tell you this is not an ideal situation, and unlikely to make for a stable and growing economy. They are particularly concerned about the potential for substantial mining revenues to destabilise the economy, a phenomenon known as ‘Dutch disease‘.

So, unlike their ancestors who sought to boost their wealth by raiding outside their own borders, the modern Mongolians have announced plans for a Mongol Sovereign Wealth Fund or Mongol Hoard.

Sophia Grene

Perhaps it is inevitable that companies continue to perform their core business even after they have spectacularly messed up, but sometimes it does take your breath away.

The temptation to tell ratings agency Moody’s about the beam in its own eye is almost irresistible. Yesterday it downgraded the operational rating of some funds because:

… Marathon’s investment and liquidity risk monitoring processes, although very strong, could be enhanced by incorporating additional shocks into a global stress test. In Moody’s view, such additional stress testing would have strengthened Marathon’s ability to cope with the market dislocation over the past year. Moody’s noted that the quality of all of the funds’ other major operational areas, such as valuation, operations, corporate functions and service providers continue to be viewed as excellent. Moody’s believes the valuation processes and back office operations have functioned particularly well during the recent periods of great market stress.

Moody’s is one of the companies currently being sued for alleged ‘negligent misrepresentation’ in its ratings of special investment vehicles, and part of an industry sector widely blamed for having failed to understand the cumulative impact of the risks it was rating.

The pot is calling the kettle black. And in this case, the pot is the sooty item and the kettle only a little tarnished.

Pauline Skypala

Poul Nyrup Rasmussen, self-styled "bogeyman" of alternative investment managers

Poul Nyrup Rasmussen, self-styled bogeyman of alternative investment managers

It seems the discussions on the European Commission’s much reviled draft directive on alternative investment fund managers are taking place after the event rather than before, as is usually the case with EU legislation.

The Financial Services Authority, the UK regulator, is focusing on this one topic in its asset management conference tomorrow. This follows last week’s debate, held in London’s Guildhall, between Poul Nyrup Rasmussen, self-styled “bogeyman” of alternative investment managers, and Lord Myners, the UK’s City Minister.

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.

Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.