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Non-disclosure agreements are an 'outrage'

31 October 2014

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Questions have been raised about the fairness of non-disclosure agreements between asset managers and pension funds.

Pension schemes argue that the practice of asset managers coercing funds into signing the agreements is uncompetitive and prevents them from securing the best deals for their members.

By contrast, asset managers are defending their commercial right to require confidentiality.

The practice of imposing confidentiality agreements over fees means pension funds are unable to compare how much they are being charged by fund managers, potentially exposing them to high costs.

The agreements are signed when funds appoint a company to manage their assets and it is this practice, critics believe, that enables fund managers to overcharge their clients.

Concerns are particularly high in the public sector where pension plans are effectively funded by the taxpayer.

David Blake, director of the Pensions Institute at Cass Business School in London, told the Financial Times that not being able to compare fee deals is an "outrage."

"Local authorities are not allowed to compare fee deals and that is an outrage. It should be made illegal that fund managers demanding an investment mandate is confidential," he said.

Research published by the FT last year showed that the Staffordshire public pension fund paid GBP 7.2m ?in fund management fees in 2011/12, and Devon's public pension fund spent GBP 2.7m for almost identical investment contracts.

The issue has already been raised with the Financial Conduct Authority by the NAPF.

"The growing prevalence of non-disclosure agreements makes it hard for pension schemes to know if they are getting a good deal or not," said NAPF head of investment, Paul Lee.

However, there is a belief within the sector that agreements are simply common practice, arguing that pension schemes are free to seek alternatives if they do not wish to sign the agreements.

Daniel Godfrey, chief executive of the Investment Management Association, which represents the interests of the fund industry, said companies have the "commercial right to require commercial arrangements to be confidential."

First published 30.10.2014

Lindsay.sharman@wilmington.co.uk