NAPF Opposes Increased Disclosure For Fund Managers

by Robin Pilgrim, LawAndTax-News.com, London

01 July 2005

Speaking at the Institute of Chartered Accountants in England and Wales's annual conference on Tuesday, chief executive of the National Association of Pension Funds, Christine Farnish hit back at suggestions that fund managers should be forced to reveal their earnings in the interest of increased transparency.

Groups such as the Confederation of British Industry have urged increased scrutiny of the remuneration of institutional investors investment fund managers, suggesting that the funds themselves have forced the business community to provide such information in the interests of improving corporate governance.

However, speaking to the ICAEW conference, Ms Farnish announced that:

"We’re not convinced that an additional code at this time would be at all helpful, especially when institutional investors, through the Institutional Shareholders’ Committee, are about to publish an updated version of their Statement of Principles on Shareholder Activism."

"John Sunderland (president of the CBI) also had a swipe at hedge funds, urging better disclosure of their performance and remuneration basis, and questioning transparency of share ownership now that contracts for difference are so widespread."

"While we don’t necessarily agree with all the points made, we do believe there are some legitimate concerns about the role of hedge funds in the investment process. The NAPF intends to promote more of a debate on these issues in the months ahead. This is not to deny the positive qualities that hedge funds can bring to capital markets in providing liquidity and facilitating price formation."

Sunderland also questioned why fund managers and others in the city were not more transparent about their own remuneration when they required that of senior company executives. He felt that what was sauce for the goose was sauce for the gander. "We believe there is a misunderstanding here about why remuneration disclosure is required for listed company executives. This is, of course, a gross invasion of personal privacy. But because there can be clear conflicts of interest on pay between company executives and owners, we see no alternative to disclosure."

"We do not see any similar public interest issues with regard to the remuneration of investors. It is, however, normal practice for the level and basis of remuneration of fund managers to be disclosed to Trustee Boards and other clients. Trustees ought to be aware of their fee arrangements with their investment management firms – it is part of their responsibilities as fiduciaries. If they choose to make this information public, then that’s for them to decide, but we don’t think this should be mandatory. Trustees are free to ask their individual investment managers what they earn and how this is made up if they wish to. It is a commercial matter then for the investment manager and his/her employer to decide how to respond."

She went on to acknowledge, however, that:

"There may...be legitimate concerns about the way in which remuneration is structured and how the incentives negotiated between trustees and investment houses work in practice. Those incentives could be perverse by encouraging short-term behaviour, for example. We intend to work with the Investment Managers Association on the principles of fee structures, and we hope to provide guidance for trustees in their negotiations with investment managers."

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