A more objective alternative for pension fund reporting
Performance magazine #24
As a general rule, investment management costs are compared by expressing fees as a percentage of assets under management (AUM). A list of the highest and lowest asset management costs is published by Pension Pro and the Dutch Central Bank (DNB), among others. This may lead to incorrect conclusions with potentially detrimental consequences for investors, the pension sector at large, and the specific pension fund in question. Higher costs may be due to investment in investment categories with higher expected returns or, for example, in a more diversified investment portfolio. The next step for the sector is to use objective indicators to compare pension fund performance.
To the point:
- There is an increasing need for cost transparency.
- Cost reporting recommendations have not been adequately implemented by the pension sector.
- Scoreboard journalism is an undesirable consequence of the appetite for cost transparency.
- An objective comparison between pension funds may be achieved by providing a balanced overview of the capability in relation to the return on investment of the portfolio and long-term comparisons.
- A more objective image for pension funds may be obtained by including the pension scheme’s level of service and complexity in the cost comparison.
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