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Q2 2021

Assessment of Value – year two in review

As we hit the midpoint of the year, many fund boards have completed or are well on the way to completing their second Assessment of Value (AoV) report.

At FBC, we felt this was an opportune moment to take stock of how boards had approached year two when compared to year one. Examining 12 fund groups’ AoV reports from the first and second years, FBC assessed the changes made from one report to the next and how these compare to the messages we have been hearing from the FCA over the past six months.

To be clear, it is FBC’s policy not to single out or identify specific boards or reports, but all the documents mentioned in this article are available in our AoV Report Bank in the Members’ Portal of the website. This analysis focuses on four areas:

• The visibility of fund boards. Chairs are becoming more visible, but other members and iNEDs in particular are still invisible in many reports.
• The remedies put in place and how these are communicated. While fee cuts and share class changes have been enacted, boards have been less certain about how to address performance issues – or how to communicate potential remedies to investors.
• Accessibility of reports. Boards are clearly putting more thought into how they present AoV outcomes and processes through infographics and visualistions – but finding the reports in the first place is still a problem.
• The approach to economies of scale. This is a key concern for the FCA, and approaches vary significantly. We compare some examples with the requirements set out by the regulator.

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The Director Interviews: Paula Moore

COO, Jupiter Fund Management
Executive director on multiple Jupiter boards including the UK ACD fund board, Jupiter Unit Trust Managers Ltd
If you ran into Paula Moore on the street, there is a relatively small chance that your first thought is here is the chief operating officer of one of the country’s most established investment managers. She wears her corporate responsibility very lightly (and thoughtfully) for the fact she has day-to-day operational oversight of the £59 billion UK-listed investment manager. Jupiter employs over 560 staff, the vast majority of whom are still working from home when we meet at the company’s offices at London’s Victoria on a hot summer’s day in June.

But this story begins late in 2020 when FBC had occasion to speak with Paula Moore in her capacity as a Jupiter board director. In a wide-ranging conversation on investment governance, she said: “If I had to choose among my various board roles at Jupiter, the one I would most like to keep is that of the ACD.”

A few months later in April this year, Nick Miller, the head of asset management at the Financial Conduct Authority (FCA) in an interview with FBC spoke with great conviction of the “primacy” of the ACD board. The FCA places a high level of importance on this board’s role within the firm, and the need to ensure that it has the most capable and senior officers on its board.

The April FCA interview is one of the most widely viewed sessions from the iNED Bootcamp, and the importance of the ACD is a point that has come up in multiple conversations since.

On the importance of the ACD fund board:

“When I joined Jupiter in 1997, I had a client servicing/facing role, I was often in direct contact with the end investor, and I was very aware of how important our treatment of that end investor was in terms of them feeling that they valued the service they received.”

“I very clearly understood at the outset that, whereas investment performance is probably what attracts the client, what keeps the client over the long term is a combination of strong investment performance and strong investment servicing… [They] need to feel that you value them as a client.”

“I think because I have a background in client servicing, even though I’ve now got a much broader remit as COO I very much recognise the importance of the strength of the AFM [authorised fund manager] board in terms of protecting clients.”

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FBC in Action – Q2 events

Members who may have missed any of these sessions can visit the Member Portal to access full length video and podcast recordings of all of our events, as well as related materials.

19th-22nd April – iNED Bootcamp

FBC’s annual festival of fund governance attracted over 150 attendees across 19 sessions. Highlights include a session with the Financial Conduct Authority’s Nick Miller, Gary Murdoch, Christopher Davis, and Aidan McEvoy, as well as multimedia content covering fund governance across borders and maximising board effectiveness. Members can still access all the content here.

3rd June – Executive Governance Roundtable

With the publication of the Financial Conduct Authority’s (FCA) product governance review in February, the regulator has highlighted what it sees as shortcomings in the asset management industry with regard to suitability. But is it fair for the FCA to put so much emphasis on suitability from the product manufacturer’s perspective? How can managers hope to meet suitability requirements in such an intermediated marketplace? Read a recap of the event here.

17th June: Putting the Customer in the Boardroom: Good Practice for Effective Use of Customer Insights by Fund Boards

Ensuring the voice of the customer is heard effectively in the boardroom is not an easy task, particularly in a heavily-intermediated industry such as asset management. In this Digital Meeting, we looked at examples of good practice in this area and examined how the effective use of research, data, and customer-centric processes are influencing the work of fund boards. Access the video or podcast recording of the session here.

Board Business – The Latest Fund Governance News

FBC monitors the financial and trade press to bring you the most important stories of the second quarter.

• Portfolio Adviser‘s take on the FCA publication, Review of host Authorised Fund Management firms, released at the end of June.
• FBC publishes a Fortnightly News Blog rounding up more of the top stories affecting iNEDs and fund boards – access it on the FBC website here.
• The start of June marked two years since the collapse of Woodford Investment Management. The Financial Times raised several unanswered questions from the fallout, including with relation to its ACD, Link, while Investment Week’s James Baxter-Derrington questioned how much faith out-of-pocket Woodford investors can have in the efforts of the FCA
• Aviva Investors admitted defeat in its battle to reopen its beleaguered open-ended property fund, as per Portfolio Adviser. Aegon followed suit just a few weeks later – Investment Week has the story.
• The Central Bank of Ireland wants a “macroprudential framework” for investment funds domiciled in Dublin, Derville Rowland, director general for financial conduct, said in a recent speech. The plan echoes that of the FCA in the UK, which has been consulting on its own prudential regime for investment funds – the consultation for this closed on 28 May.
• The FCA is keen to get asset managers to properly assess the profitability of their fund ranges, reports Ignites Europe (subscription required). It is concerned that some boards have misinterpreted what it wants.
• Investment bank researchers and analysts are paying attention to AoV reports as part of their work on listed fund groups, according to Ignites Europe (subscription required).
• Sunday Times money editor James Coney wrote a scathing editorial taking aim at the investment industry for lacking accountability, citing several AoV reports and questioning their output.
• Schroders’ fund board is considering how to act on funds flagged in two consecutive AoV reports. Portfolio Adviser delved into the fund board’s report to analyse issues with some multi-manager funds and what might happen next.
• The £24.4bn Fundsmith Equity fund has maintained its fee level after its second AoV report, but Citywire’s James Phillips questions whether the company is passing on scale benefits in this article.
• The £24.4bn Fundsmith Equity fund has maintained its fee level after its second AoV report, but Citywire’s James Phillips questions whether the company is passing on scale benefits in this article.
• There has been a fair amount of action reported off the back of new AoV reports. Canada Life Asset Management has cut fees on some of its bond funds, according to Portfolio Adviser.
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FBC publishes a Fortnightly News Blog rounding up more of the top stories affecting iNEDs and fund boards – access it on the FBC website here.