Fifty-three percent of pension fund sponsors in Canada are not aware of the impact that adopting best trade execution practices could have on their fund’s annual returns, according to a survey by Morneau Sobeco.
Its 60 Second Survey reveals that 32% of pension fund sponsors estimate that “best execution” practices improve their fund’s return by more that 50 basis points and possibly as much as 1% annually.
“Most of the pension fund sponsors that are aware of this want to know more, and say that they are ready to request a demonstration by their fund managers,” says Jean Bergeron, principal in Morneau Sobeco’s Asset Management Consulting practice.
The survey explains the effect of “best execution” practices would be equivalent to between a quarter and half of the pension fund’s median return, which was 2.1% in 2007 according to Morneau Sobeco’s performance universe.
More than two-thirds of fund sponsors polled define “best execution” as the purchase or sale of securities at the best, fair, or reasonable price considering the overall services offered by the broker. Other factors proposed by Canadian regulators include speed, certainty of execution, and total cost.
The survey also finds that 34% of pension fund sponsors surveyed could not define “best execution,” illustrating a lack of awareness and preparation of many Canadian professionals, compared to their American and European counterparts. In 2007 rules were adopted in Europe and the United States to incite brokers and institutional managers to adopt best execution practices, but Canadian regulators have yet to follow suit.
Half of the fund sponsors polled are not planning to change their execution practices in 2008, but 34% of them include best execution criteria in their procedure for selecting securities brokers. Twenty-seven percent of these fund sponsors do not know if this criteria is even considered.
There were 95 pension funds that participated in the survey.
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