Last week I published an article “Power to the People”, calling on People’s pension to tell their members what their asset managers were charging for stock lending on trustee’s assets.
People’s Pension has responded with a comment on that blog.
The People’s Pension comment on this article can be found at:
http://bandce.co.uk/response-henry-tappers-blog/Kind regards
Andy Tarrant
The answer is 30% of the revenues.
Income generated from securities lending is allocated 70% to the funds (ie the members) and 30% to the lending agent as is the case for all State Street’s Managed Pension Fund clients
Previously the fund was invested with LGIM (part of Legal & General). Legal & General do not charge separately for stock lending, the cost is born by L&G as part of the service.
Though People’s Pension does not say this, I will. Members of the People’s Pension – when invested by LGIM did not pay a charge for stock lending, now they do. There is a further question – one not answered by People’s Pension which is “how much”.
How much of the stock owned by the trustees on behalf of members is being leant and what are the revenues in £sd terms that State Street are making from this money?
Why was this change in practice not disclosed by the Trustees to the members and why is there still so little transparency in the disclosure of the impact of the change of policy?
Why is it left to this blog to be asking these questions and why has this not been raised by any of the investment consultants who are analysing the People’s Pension on behalf of their clients?
These are precisely the questions that the FCA is asking asset managers and investment consultants as part of its recently published Asset Management Study (interim).
I suspect that the answer to these questions goes to the core of what is wrong with the system of checks and balances on asset managers. If you read People’s blog (and I’ve published it at the bottom of this article), you’ll sense affront in every line.
Henry Tapper’s article makes some specific points which are either not accurate or not appropriate.
Well it is not just me that is concerned about People’s Pension’s poor transparency. Here is Share Action’s March survey on People’s and its position relative to its rivals.
It should be noted that the only organisation at the same rating (Scottish Widows) similarly employs State Street Global Advisers to manage the bulk of its assets.
I’m not sure whether the findings of Share Action are similarly to be dismissed as neither “accurate or appropriate” but as the Pensions Regulator specifically requires Master Trusts (along with other DC pension trusts) to have a stated policy on the matters Share Action were asking, I suggest that it is People’s who need to look to their practices.
Similarly, in failing to disclose the price-hike to member funds occasioned by the switch to State Street, I believe that the trustees are failing in their duties to members. I have read the B&CE IGC’s Chair’s Statement and it is – like the Trustees, silent on both the price hike and its impact on members.
Is it inappropriate for me to raise these matters?
Well my simple answer is “if not me – who?”. The FCA’s market study returns again and again to the failure of consultants to act for members in pricing matters. This is precisely what I am doing.
Not only have I challenged , but it turns out I was right – members are now paying 30% of stock lending revenues to State Street when before they were getting these services at no cost from Legal & General.
As to my point about the ineffectiveness of B&CE’s IGC, well where are they on this? What were they doing to ensure that the interests of B&CE’s vertically integrated master trust were being protected when B&CE moved £2bn of assets from L&G to SSga?
And why is it inappropriate for me to ask these questions?
As for my accusation that the big winner out of this stock lending price hike is the management of B&CE – what other conclusion can I draw?
Since the member’s are paying more, might I reasonably expect B&CE to be paying less?
They have not disclosed the terms of the Investment Management Agreement with SSga (nor the former agreement with LGIM) but the market is well informed and knows it to be offering B&CE better terms.
I am inferring that the better terms for B&CE are at the expense of worse terms for members. People’s are not denying this, I think this is a reasonable inference.
People’s Pension has not reduced its member charge when switching from LGIM to SSga; in a “not-for- profit” enterprise like B&CE, who else can benefit from this than the management of B&CE and their master trust People’s Pension?
If People’s want to refute what I am saying, let it explain the pricing implications for members in moving from the LGIM IMA to the SSga IMA. Let it practice what it preaches in its blog.
we expect to be amongst the earliest adopters of full transparency of transaction costs to our members.
I hope that this transparency will extend to “value” reporting as I am utterly confused about this statement (on State Street’s performance – in their blog)
From when fund management was changed to State Street (20 January 2016) up to 30 June 2016 the net contribution to the performance of our default Global Investments (up to 85%) Shares fund was c. 1.8 basis points
Contrition?
What is so weird about People’s Pension’s blog is that it is utterly devoid of contrition. Nowhere does it accept that it is anywhere at fault in all this. Instead it points the finger at me for exposing its failings.
As I hope I have explained (twice), B&CE, through People’s Pension, are almost certainly profiting from lower fees for asset management while members are paying fees for the first time for stock lending.
This has not been disclosed either by B&CE’s IGC or by the trustees or management of People’s Pension.
We do not know the impact of this because we cannot see the IMA and know how much of the stock SSga are lending. We do not know what the IMA says because it is not made available to the public. B&CE is a mutual, as it tells us in its blog
With no shareholders, the interests of our members have dominated B&CE’s (the provider of The People’s Pension) decision-making for 75 years and this remains the case
That I know to be true. I have a very high regard for the People’s Pension as is evidenced in its generally high rating in http://www.pensionplaypen.com.
The fact remains that if it cannot distribute to shareholders, who else benefits from price hikes than management. There is nothing wrong in management being rewarded so long as it is done in a transparent way!
I remain puzzled and disappointed
Why is an organisation that I fundamentally like, behaving in this high-handed untransparant and unpleasant fashion. Why is it failing to disclose the price hike on Stock lending? Why is it not saying sorry to its customers?
Text of People’s Pension blog published on B&CE website.
A response to Henry Tapper’s Blog
We at The People’s Pension like to challenge, and be challenged. Holding each other to account is key to improving pensions for everyone.
However, for this dialogue to be effective, it needs to be accurate. Below we set out why Henry’s article is potentially misleading in both the general light it casts and in the detail.
General comment
As an organisation we are passionate about transparency and keeping things simple for our members – these are the foundations on which The People’s Pension has been built. Since its launch, we have been one of the only schemes which operated a single annual management charge for members inclusive of all operating expenses (known as the Total Expense Ratio) with no other fees or penalties.
In addition, we are supporters of the disclosure of transaction costs incurred by fund managers with whom pension providers invest their members’ money.
We are working with the third-party fund manager with whom we invest our members’ money, State Street, to ensure that all transaction costs incurred in managing that money are disclosed. However much as we might like it to be the case, delivering the full transparency of costs for which we have asked is not an overnight exercise. We invest our members’ money in a fund of funds. This requires a more complex disclosure process than fund managers’ systems have in the past been designed to deliver.
One might imagine from the article that we were being singled out because we are behind the industry regarding transaction cost disclosure. In fact, we expect to be amongst the earliest adopters of full transparency of transaction costs to our members.
Specific comment
Henry Tapper’s article makes some specific points which are either not accurate or not appropriate.
“State Street tend to retain stock lending for their own purposes” [Phrases are paraphrased for brevity]
This is not correct. Income generated from securities lending is allocated 70% to the funds (ie the members) and 30% to the lending agent as is the case for all State Street’s Managed Pension Fund clients. State Street takes on all the counter party risk and pays all the costs associated with the lending programme.
“These stock lending fees do not benefit the member”
This is not correct. The 70% revenue allocation goes to the members’ funds. From when fund management was changed to State Street (20 January 2016) up to 30 June 2016 the net contribution to the performance of our default Global Investments (up to 85%) Shares fund was c. 1.8 basis points. This was of direct benefit to members whose funds are slightly larger than they otherwise would have been.
“B&CE are the only IGC whose IGC statement I have not read (I can’t find it)”
The B&CE IGC Statement is located on the B&CE website in the section that deals with the relevant pension scheme, Easybuild. The People’s Pension is a trust-based scheme and does not have an IGC.
“LGIM are transparent. State Street aren’t”
We disagree. State Street are transparent. The People’s Pension members get 70% of any revenue, the costs are taken care of separately by State Street and do not fall on the member, and, critically, State Street bear all the counter party risk. A percentage division of profits is clear and transparent.
We invest with Managed Pension Funds Limited (SSGA’s UK vehicle for pension fund investors). They produce a quarterly fact sheet that provides full details on the State Street Lending programme, including details of what percentage of the fund is on loan and the contribution to the performance of the funds over the period. They also state how the revenue from securities lending is split. So we know exactly what is going on.
“We must assume that no news is good news”
We are working hard on plans for full transparency of transaction costs which we believe will advance the whole transparency agenda and our Trustees are fully committed to supporting this work. We will talk more widely about these when we are ready to do so.
“Management are being over-rewarded”
We work at a not-for-profit for many reasons, but financial ones certainly are not top of the list. With no shareholders, the interests of our members have dominated B&CE’s (the provider of The People’s Pension) decision-making for 75 years and this remains the case.
Based only on the response offered by Peoples Pension, I think they have answered your points very well Henry. What they appear to be saying is that if stock lending yields a loss then State Street bear the losses? And that conceptually, in return for taking that risk of losses on board, and paying all costs of stock lending, they keep 30% of the profits on stock lending and members therefore benefit from 70% of the profits and do not suffer from any of the losses? If this is the case, and if this is clearly explained then is this a problem from a transparency point of view? I accept that LGIM were not retaining any of the profits, but as long as it is clear and transparent that State Street keep 30% then surely it is also true that the members do benefit when the 70% of the profit from stock lending is added to their funds? I am simply trying to understand what they are saying, as I have recommended People’s Pension to several corporate clients and want to understand properly the impact of stock lending on overall charges and on additional benefits for the members. I have ignored their comments criticising you, as that is unfortunate that they have done that when your motives are honourable, I am simply trying to understand what they are saying correctly?
I have no problem with what they are saying – that they charge for administration and underwriting. But I have waited a number of months for this answer Brian and when it came, it came without some critical info.. the impact of the policy relative to L&Gs. The problem with not getting any answers is that we cannot rate People’s and that goes for incomplete answers (which is what we have). What I want to know – and can’t get – is an understanding of why LGIM were sacked and SSga appointed and whether this was in the interests of members or B&CE / Peoples. It’s been the best part of a year since this all happened and since the answers impact anticipated outcomes, I think Peoples are being at best tardy and at worst downright obfuscatory. The trouble is that people like me are not supposed to ask these questions and the people who are supposed to ask them don’t (see recent FCA paper).