BNP Paribas AM: A fiduciary manager can play a pivotal role

A fiduciary manager can help ensure investments 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, 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 does one 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.

Fiduciary management should be a partnership with a holistic approach and integrated balance sheet management. It provides support to pension fund management in formulating and fulfilling investment objectives. The fund remains in control, with the fiduciary manager monitoring the total portfolio. Sometimes the fiduciary manager only works with the LDI (liability driven investment) portfolio or advises on a CDI (cash flow-driven investment) portfolio.

Read more about how a fiduciary manager can bring added value to investments, and the pros and cons of outsourcing decision-making.