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Measuring the effectiveness of the fiduciary manager

A fiduciary manager can play a crucial role in helping to ensure investments – especially those of pension funds – are managed transparently, that they perform optimally and that they meet all regulatory requirements.

Mesurer l'efficacité du gérant fiduciaire

A fiduciary manager can play a crucial role in helping to ensure investments – especially those of pension funds – are managed transparently, that they perform optimally and that they meet all regulatory requirements.

Since fiduciary management was set up some 20 years ago, recording steady growth in both mandates and assets under management [1], more and more has become expected from fiduciary managers. They are asked to be increasingly transparent: they must clearly explain to stakeholders what they do and report in the right format and context.

These requirements are partly driven by the regulator, who requires pension fund boards to know what they are doing and to be accountable. A fiduciary manager can contribute to this by being as clear as possible about the activities, costs and results, both in advance and afterwards. This also makes it clear to the board where the added value lies. But what is the role of such a manager and how do you measure effectiveness?

What does a fiduciary manager do?

The basis is that a fiduciary manager always implements decisions made by the client – often a pension fund. The client ultimately determines the type of management and implementation, the extent of the fiduciary manager's contribution, and the remuneration for the outsourced work.

The tasks of the fiduciary manager include

  • Advising on the relationship between assets and liabilities
  • Implementing / helping to implement the portfolio efficiently and optimally, bearing in mind the risk budget
  • Selecting best-in-class, internal and external, (asset) managers
  • Monitoring the portfolio (in particular, risks and effectiveness) and reporting.
We see fiduciary management as a partnership with a holistic approach and integrated balance sheet management. We support pension fund management in the formulation and realisation of investment objectives. The fund remains in control, we monitor the total portfolio. Sometimes we only work with the LDI (liability driven investment) portfolio or we advise on a CDI (cash flow-driven investment) portfolio. The outsourcing model is similar. Measuring the effectiveness of the fiduciary manager

What about the added value?

When it comes to assessing the fiduciary manager, there are various questions.

  • Does their input add value?
  • Does, for example, the proposed ratio between the matching and return portfolio achieve a sufficient additional return?
  • Have the appropriate benchmarks and the corresponding managers for each investment class been selected?
  • Does the chosen (internal or external) manager deliver the alpha or the value expected by the customer?

In the UK, added value is measured by the evolution of the funding ratio on the basis of a formulated glide path. Such a yardstick assumes that the fiduciary manager has great discretion when managing that funding ratio.

This approach is not possible in the Netherlands. The supervisor obliges funds to know what is happening in the investment portfolio and to have full control over portfolio activity and policy. Here assessing the added value is less direct, perhaps even more subjective.

Advantages and disadvantages of outsourcing

The experience and market knowledge of the fiduciary manager plays a clear role. For example, if the liabilities are discounted against a derivative of the interest rate swap curve, the manager may point out that the least risky way to hedge liabilities is to use swaps. If the pension fund chooses to steer clear of derivatives, the consequence is that that position probably reduces the efficiency of matching the liabilities.

However, if the fund wishes to use derivatives, the fiduciary manager may be called upon to assist in managing the matching portfolio. The advantage is that the portfolio is managed efficiently as desired by the pension fund. However, the board must be comfortable with such an outsourcing structure with derivatives.

A different view

Such a shift from purely traditional liquid shares and fixed income securities to products with a somewhat higher return, but also higher risk or greater illiquidity, requires the fund to be open to an alternative approach that is in line with the board’s risk appetite.

To determine whether this shift can be effective, questions need to be asked. For example, does greater investment in higher risk asset classes (such as equities or derivatives) actually contribute to an improvement in the funding ratio? Can more active management deliver additional value within the various asset classes? Does having a fiduciary manager bring scale and cost advantages?

When seeking answers to such questions, you would be wise to call in a good fiduciary manager.


[1] For illustration purposes only - UK: growth in full and partial mandates from a total 59 in 2008 to 862 in 2018; in assets under management from GBP 12 billion in 2008 to GBP 142 billion in 2018; end-December 2018 data from

The investments in the funds are subject to market fluctuations and the risks inherent in investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay.

For more articles by Anton Wouters, click here >

To read the interview with Anton Wouters in Financial Investigator magazine (Dutch only), click here >

To discover our funds and select the ones that meet your requirements, click here > Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.

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