UK Issues Report on Pension Fund DecisonmakingWashington, DC, April 9, 2001 - The government of the United Kingdom issued a report concerning the nation's pension funds. The purpose of the report was to review whether any factors distort the investment decisionmaking of institutional investors and, in particular, pension funds. The report focuses on whether distortions exist within the system that cause institutional investors to avoid investing in small- and medium-sized companies. The report provides an analysis of the current pension fund system in the UK, and makes numerous recommendations to strengthen pension fund asset management decisionmaking. The report recommends a number of principles for the industry to adopt. The principles include: - trustees of pension funds should have the skills, information, and resources to make decisions effectively;
- trustees should set out investment objectives for the fund that relate directly to the circumstances of the fund;
- trustees should give fund managers an explicit written mandate setting forth the investment objectives and a clear timeframe for measurement and evaluation; and
- funds, in consultation with their investment manager, should explicitly consider whether the selected index benchmarks are appropriate.
The report also recommends that brokerage commissions be paid by the fund managers. The report takes the view that it is good practice for institutional investment management mandates to incorporate a management fee inclusive of any external research, information, and transaction costs. The report does not propose to require pension funds to adopt the report principles, but recommends that pension funds voluntarily disclose to the public if they choose not to comply with the principles. The report also recommends that the UK government review, in two years, whether the principles have resulted in change and require disclosure if the industry has not voluntarily adopted the principles.
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