Amnesia at the FSA?

Author: Huw Jones
Published: 6th September 2012

Big stuff in the news from the FSA today about an index tracking investment philosophy and independence. They seem to have forgotten about their conclusions as to the value of active fund management.

The following exchange took place during a hearing of the House Treasury Committee at Westminster on 3rd May 2006. Giving evidence on behalf of the FSA was Mr Clive Briault, Managing Director, Retail Markets (source: Hansard).

Mr Newmark MP: I am just trying to understand, is there an advantage to going into actively managed funds and do those people whose funds are being managed benefit from more actively managed funds or is it just a means for active fund managers to make more money because the average consumer is not benefiting from that?

Mr Briault: Well, when you say “make more money”, of course there is also a cost to the firm of actively managing the fund and it is a question of how those costs are then reflected in the charging structure. In competitive markets, you would not expect the firm necessarily to make a lot more money —-

Mr Newmark: No, I understand that, but is there any evidence that actively managed funds are performing better than tracker funds?

Mr Briault: No.

Mr Newmark: You are saying no?

Mr Briault: Yes, absolutely.

Mr Newmark: So the only people benefiting from this are the fund managers?

Mr Briault: Well, depending on the charging structure related to the costs of running the actively managed fund, yes.

I’ll leave you to draw your own conclusions.

I will add that the Treasury Committee transcript was part of the fifth report of the 2005-06 session published on 21st May 2006 to specifically look at the design of the National Pensions Savings Scheme.  You remember it, right?

That’s the one where they decided to drop the word pension, rename it the National Employment Savings Trust (NEST) and which doesn’t offer any active funds.

The full transcript is HERE. Question 146 is worth a read too…