Every corporate pension fund now appoints one or more global custodians to safekeep and service assets in all markets and asset classes where the fund is invested, whether the managers of the fund are employed in-house or working for third-party fund management houses. Thomas Murray advises private pension funds of this kind on the appointment, reappointment and replacement of global custodians, and monitors the performance of their global custodians against service level agreements (SLAs) and industry best practices. The firm advises pension funds on the risks they run by using different market infrastructures, and helps them manage risks, reduce costs and increase revenues from ancillary activities such as cash management, foreign exchange execution and securities lending.
Public sector pension funds come in many different shapes and sizes. Some were set up to fund the retirements of central or local government officials, or people working in a nationalized industry, or the employees of state-funded services such as schools, universities or hospitals. State-backed but fully funded pension schemes to cover entire populations are now also being set up. In addition, there is a growing number of so-called sovereign wealth funds, established to transform windfalls from natural resources into a return for future generations. Thomas Murray is advising funds of these kinds on the appointment and monitoring of global custodians against service level agreements (SLAs) and industry best practices. The firm also helps public sector funds understand and manage infrastructural risks.
Our services will ensure that clients:
- Select the most appropriate service provider
- Are not exposed to unnecessary risks
- Achieve the most competitive terms
- Are able to quantify "hidden" costs e.g. foreign exchange execution.
AP4, Abbey, Alecta, AMF Pension, Amonis, Associated British Foods, AUS Fund, BAE Systems, BCSSS, BMW, BOC, British Airways, British Coal Staff Superannuation, Calouste Gulbenkian Foundation, Cambridgeshire County Council, CBC, CBUS, Church Commissioners, The Church of England, City of Edmonton, Co-operative Group, Cornwall County Council, Corporation of London, Devon County Council, Diageo, Dorset County Council, Ealing Council, Environment Agency, Esmee Fairbairn Foundation, Essex County Council, First Pension Custodian, First State Super, Fjarde AP-Fonden, Government of Alberta, ICI, Ilmarinen, Imperial Tobacco, ITV, Kingfisher, KLP, OP Trust, London Borough of Hillingdon, London Borough of Hounslow, London Pension Funds Authority, LUCRF Super, Masterfoods International, MD Financial, Merchant Navy, Michelin, Mitchells & Butlers, MNOPF, MPS, MTAA Super Fund, Nestle, New Zealand Superannuation Fund, NGS Super, The Pensions Trust, Railpen Investments, Trustees Executors, TRW Pensions, Universities Superannuation Scheme, WCB, Wellcome Trust, West Sussex County Council, Whitbread, Wiltshire County Council.
The trustees of a UK pension scheme with a portfolio of approximately £1.6 billion engaged Thomas Murray to undertake monitoring of its custody arrangements with a large global custodian based in London.
The pension fund had a long term relationship with its custodian and was broadly satisfied with the services that it received. However, the fund also wanted assurance that it was receiving high quality operational performance with competitive fees.
Thomas Murray compared the fees paid by the fund to the fees paid by similarly sized funds with similar asset classes invested in similar geographic markets. Potential savings of approximately £100,000 were identified. Detailed analysis of the client’s safekeeping and transaction processing charges indicated that it was paying approximately £95,000 per annum more than current average market rates. In addition, Thomas Murray was able to identify potential savings of £11,000 per annum in the fund’s third party foreign exchange transaction charges.
In total, the potential savings identified were approximately 35% of the custodian’s then current annual fee.
In addition to the savings noted above, Thomas Murray discovered that a reduction in third party foreign exchange and margin movement charges had been agreed by the custodian in 2005 but had not been implemented. The client successfully obtained a rebate of £38,000 on past fees and is now in the process of re-negotiating its fee structure.
The review of the client’s Master Custody Agreement, which dated back to 2002, indentified a large number of differences to current best market practice. The weaknesses in the contract exposed the client to risks associated with deficiencies in the provision of information about corporate actions and financial loss in the event of the execution of liens. The agreement also required strengthening to ensure that the client was fully protected in respect of the clear segregation of its assets from those of the custodian’s.
Thomas Murray’s ongoing monitoring of the custodian operational performance also identified a number of areas of concern which were pointed out to the client for follow up with the custodian. Of particular concern for this client was the level of income amendments and an unexpected deterioration in the volume and value of outstanding tax reclaims.
The client intends to continue to monitor the situation as part of Thomas Murray’s on-going monitoring service.
A large UK corporate pension scheme that has a portfolio of approximately £10 billion of assets under custody engaged Thomas Murray to perform ongoing monitoring of its existing custody arrangements.
Thomas Murray’s Operational Benchmarking analysis examines a number of important operational key performance indicators and assists the client in assessing the custodian’s operational performance. The client generally benefits from a strong relationship with the custodian; however a clear issue was identified regarding the timing and resolution of client service enquiries. The analysis has helped the client fully recognise the core issue and the custodian has now replaced its client service representative.
Thomas Murray’s review of the client’s Master Custody Agreement indicated that, although the agreement had only relatively recently been negotiated, there were a number of key deficiencies when compared to current best market practice. Concern was raised about the level of the custodian’s liability in the case of any insolvency in its sub-custodian network. The client was also at risk of financial loss due to errors in custodian reporting. Thomas Murray recommended that the client address the specific clauses with the custodian.
As part of the analysis of the client’s current fee structure, Thomas Murray indentified potential savings of approximately £250,000 - approximately 30% of the current annual fee. In particular Thomas Murray identified that securities transactions charges in specific markets were higher than expected.
Comparing the current accounting fees paid by the client against recent proposals for funds of similar value, the client was able to identify additional potential savings of £30,000 p.a.