Mission Complete – This year I am “Surviving the Yomp”

Thank You for caring and making a real difference. Twelve Months ago on Monday 3rd September 2012 I took the leap and took on the Descent the Shard. Why, to raise serious amounts of money for charity, and to push myself way outside of my comfort zone.

This year I am “Surviving the Yomp” – the challenge –

You are 21 miles in. Your feet are throbbing and your shoulders burning. Your brain is telling you to stop and rest but you know you must dig deep and carry on. Every Royal Marine has to have reserves of physical and mental strength to complete the Yomp, the 30 mile final test in their gruelling training to gain their green beret.

Am I tough enough to Survive The Yomp and raise serious sums for Royal Marines in need? Please sponsor me http://www.justgiving.com/Rob-Gardner8.

Watch my short video of the Descent of the Shard to see the build-up, the descent and the incredible views of London from the top!

Commando Spirit’s mission is to raise £1million by 2014 for the Royal Marines Charitable Trust Fund (RMCTF). As a result of everyone’s generous support and donations we managed to raise £25,532 in sponsorship which ended up helping raise a total of more than £400,000 and a grand total of funds raised so far since 2011 (including Escape the Dunker) of £653,491. The RMCTF exists to provide benevolence support to bereaved widows and families, serving and retired Royal Marines and their dependants, and also to underpin morale, efficiency and spirit de corps. With the continuing toll of casualties arising from operations in Afghanistan, the work of RMCTF in supporting our wounded on the Recovery Pathway is more than ever. Raising £25,532 was no easy feat. It involved

For those of you interested in the fundraising statistics – I had 365 JustGiving donations and several cheques which resulted in an average of just over £65 per person – A truly remarkable achievement. Thank you again for caring and making a real difference.

#RIP – Jeremy Paxton the spirit of adventure!

DCIM100GOPROOn a sad note my good friend and fellow descendant and shardist Jeremy Michael Paxton (1960-2013) passed away last month. Jeremy was a truly remarkable man who touched all of our hearts and changed our lives forever. Jeremy’s death has reminded me of the importance of living each day to the full, and to quote Abraham Lincoln “In the end, it’s not the years in your life that count. It’s the life in your years.”

The genius of the AND versus the tyranny of the OR

Current debate over Defined Benefit (DB) pensions has captured the attention of the public and press. People are living longer, investment returns are lower than expected, and economic uncertainty has led to the closure of DB pension funds to future accrual in order to cap the ever rising cost of servicing these liabilities. Following these lethal blows, 2012 saw the introduction of auto-enrolment, and in 2013 the Department for Work and Pensions (DWP) is consulting on the topic of whether the industry should change the discount rate used to value liabilities to a smoothed one, in order to reduce the impact of current low gilt yields.

However, we are still faced with two serious challenges that have yet to be fully faced:

Continue reading “The genius of the AND versus the tyranny of the OR”

What are the Top Challenges facing Defined Benefit Pensions

Dear Pension’s Colleague,

Kung Hei Fat Choi 2013!

In the face of continuing economic uncertainty, we (Redington) would like to understand what the Defined Benefit pensions industry believes are the greatest challenges it currently faces, and what will be the greatest challenges in the coming years. With this information, we hope to collate the insights in a report in order to understand the motivations and concerns of those around us. Please take 3 to 5 minutes to complete the survey – https://www.surveymonkey.com/s/DBTop3

Thank you for your participation! The survey results will be made available for download and can be used at your discretion, for insight and as a basis for discussion.

Rob

p.s. I hope to follow this up with a report on the Top Challenges facing Defined Contribution Pensions.

A game of Snakes and Ladders

In the UK, as a final salary pension fund, you may be feeling as if you have just landed on a ladder and risen several rows on the board game closer to the finish: full funding. The FTSE100 equity index had its best performing January since 1989 and the S&P500 has broken through 14,000. These are levels not reached since before the onset of the Global Financial Crisis in 2007. All of this is good news for pension funds invested in equities as their funding levels will have improved significantly over the past few months.

In the US, it appears that many pension funds have landed on a “snake”, as corporate after corporate announces significant cash injections to their underfunded pension funds. So much so that, when I made a comment on Twitter about Ford’s $5billion funding of its pension fund, it elicited the response from ‏@blackbullion “isn’t Detroit an underfunded pension fund that makes some cars?” . Ford isn’t alone in making significant cash contributions to its pension funds. It is joined by other large US corporations Honeywell, Raytheon etc. All of whom have stepped on the proverbial pensions snake.

The big question is what should they do next? This highlights the difference between an “outcome focused investment strategy” or a “peers based investment strategy”. An outcome focused pension fund will have clear goals and objectives combined with regular monitoring of its assets, liabilities, funding level and perhaps its ongoing required rate of return. They will likely focus on risk and return and see the recent strong outperformance of equities over liabilities (see chart) as an opportunity to take-profit; that is, bank the outperformance of their assets over their liabilities. Within a peers based investment strategy, on the other hand, more focus is laid on the value of assets than on funding level.

The chart below shows the relative value of equities to index linked gilts plotted against the PPF 7800 funding ratio. The FTSE/Index-Linked Gilt ratio is calculated by taking the market level of the FTSE (6,000) divided by the price of the 2037 Index Linked Gilt (120). This gives a ratio of 50. The FTSE/Index-Linked Gilt ratio can be enlightening as a “rule of thumb” proxy for pension funds’ decisions to switch between equity and fixed income. Opportunities to dynamically “take profit” out of equities and into index linked gilts to hedge the liabilities are highlighted at the peaks (1) and (2). The PPF 7800 Funding Ratio is given in the background to provide context of the relative performance of a large sample of pension funds.

Chart showing the relative value of Equities (FTSE100) to Index Linked Gilts (ILG 2037) – plotted against the PPF7800 Index

snakes_and_laddersSource: Bloomberg, PPF and Redington

Checklist for “taking profit” and dynamic risk management

  1. Do you have clear goals and objectives?
  2. Do you have take profit triggers in place?
    • Are they market yield based?
    • or
    • Funding level based?
    • or
    • Versus your “Flight Plan” and you “Required Rate of Return”?
  3. Do you have regular monitoring in place to capture these opportunities?
  4. Do you have the governance and delegation to be agile and take advantage of these opportunities?

Which is better? We are all faced with the same financial uncertainty. However, if you had the opportunity to remove the big snake on the final row to the finish in exchange for removing one ladder from the board – would you? My view is that repairing the deficit and improving the security of the pensioners through prudent and disciplined risk management is the best way forward.

Happy to discuss.

Pensions and Infrastructure Funding Discussion – Pinsent Masons

Pensions and Infrastructure Funding Discussion – Pinsent Masons

On Tuesday 15th January Pinsent Masons Infrastructure and Pensions practice held a dinner to discuss Infrastructure funding. The guest list included a cross section of treasury and government officials, infrastructure construction companies, infrastructure advisors, funders and investment advisors as well as pension’s professionals. The evening was chaired by Richard Laudy – Head of Infrastructure at Pinsent Masons and Graham Robinson – Global Business Consultant at Pinsent Mason. The idea of the evening was to have a clam debate and discussion on the future of infrastructure funding in the UK. Doug Segars – Head of Infrastructure Finance, HM Treasury started with an update and overview of the National Infrastructure Plan. Then Joanne Segars – Chief Executive of the NAPF, gave an update on the Pension Infrastructure Platform “PIP”. I then followed by explaining why pension funds might invest in infrastructure, in what format e.g. debt or equity and where might it fit in the portfolio? – My 3 minute speech is below.

“Good evening, I am Robert Gardner, co-CEO of Redington. We design, develop and deliver investment strategies for pension plans around the world. Before providing you with a brief overview of institutional investment in infrastructure, and the challenges this entails, it’s worth taking the time to explain to you how our clients see the world, and how infrastructure fits into it. We have developed a 7 step framework that allows our clients to make informed and intelligent investment decisions on a timely basis, and leaves them feeling in control. Over the past two years a number of our clients have invested in infrastructure assets in various formats as part of this 7 step framework.

Step 1: involves a clear plan. This clear plan is called the Pension Risk Management Framework “PRMF”, and it is a document that details the pension plan’s goals, objectives and constraints.

Step 2 is the development of a risk management hub, typically in the form of an LDI manager tasked with hedging interest and inflation risk of the liabilities, collateral management and other risk hedging, for example, equities and longevity.

Steps 3, 4, 5 and 6 are where we make our investment decisions:

Step 3 is liquid active and passive investments, so mainly equities;

Step 4 is liquid and semi-liquid credit, so that might be, for example, an investment grade bond issued by Porterbrook Rail.

Step 5, in which the majority of infrastructure debt sits, is illiquid credit.

Step 6 is illiquid active and passive investments, so that might take the form of an equity stake in a water company.

Step 7, the final step, is the ongoing and almost paranoid monitoring of the pension plan’s investment performance against step 1;

Using this 7 step framework our clients can assess the return, risk and liquidity characteristics of an infrastructure investment against their Pension Risk Management Framework to understand if they want to invest, and, if so, where it fits in their portfolios. They can then explore which format is the best delivery option given their size and governance constraints.

The reason I have just told you this is to emphasise that infrastructure comes in many guises, each with its own specific characteristics, risk profile and nuances – which need to be clearly understood and articulated. To date, UK pension schemes have lagged their Australian and Canadian counterparts, but things are slowly changing. Market participants are slowly adapting to a world where banks are no longer willing to provide the necessary funding and are actively seeking solutions to this problem. These range from public initiatives, such as the NAPF and PFF’s Pension Infrastructure Platform; to private initiatives such as Redington’s partnership with Pinsent Masons which aims to deliver an investment framework in infrastructure debt. The investments considered as part of our partnership with Pinsent Masons range from secondary PFI loans sourced from a bank’s balance sheet, to new direct lending. This private placement format can be done for both new infrastructure assets and refinancing. Its strengths are, first, that it allows a more tailored debt offering for both the borrower and the lender: the assets are inflation linked and feature longer-dated amortisation profiles from 25 to 50 year maturities. Second, they offer and typically higher yields due to the illiquidity premium. In step 6 clients might invest in a water company or a portfolio of wind farms.

But – there have certainly been challenges along the way for pension funds.

Rightly or wrongly, the majority of trustees don’t want exposure to construction risk, which is an aversion the industry will need to address. Whether approaching this problem will involve banks assuming the construction risk and pension schemes assuming some operational risk, or whether it involves government guarantees or intervention, is up for debate.

The other issue concerns the solutions currently available in the market. The majority are not sufficiently bespoke to meet the objectives of long term investors. Their profile is more akin to private equity; and returns, net of fees, are not sufficiently attractive relative to the complexity/governance required to implement them.

Whatever the solution, it will require a concerted and collaborative effort by all market participants. Each will need to bring their own skills to bear and each must assume the risk they are structured to bear.

Tonight’s dinner, we hope, is a step in the right direction

Many Thanks”

Goals 2013 – a year of Goals, Commitment and Accountability

rob-quote

Happy New Year! After a big night out we wake-up and write down our new year’s resolution(s). It’s the usual wish list lose weight, get fitter, earn more money, give-up drinking, smoking etc.

On Tuesday 1st January I listened to an excellent webinar by Shaa Wasmund  “Why you should Forget New Year’s Resolutions”.  @shaawasmund is the best selling author of “Stop Talking, Start Doing”, the UK’s best selling business book of 2012!

She told us that by the 19th January, less than 3 weeks in, 85% of these New Year’s resolutions fail, leaving us feeling like a failure. Part of the challenge is that New Year’s resolutions are more like a wish list with no focus or commitment to achieve them, and/or they are too large a goal to be realistically achieved.

Please read Shaa’s blog – 5 Ways To Make Your Resolutions Stick

In 2013 I wanted to share a different way of achieving your goals. Shaa suggests first we make a #Commitment – one clear goal with a focus on how to achieve it i.e. a plan of action to make it happen.  Second we need to be #Accountable – share your commitment with a friend or colleague this accountability makes sure you stay on track and achieve your goals.

I learned this lesson in October 2012 when I did the 10,000 push-up challenge.

  • Goal – 10,000 push-ups in one-month (325/day)
  • Commitment (and discipline) to do a minimum of 250 every day and to aim for 325/day
  • Accountability – I challenged my super fit colleague and ALM black-belt Dan Mikulskis @danmikulskis to the challenge and made myself accountable to my colleagues and clients.

Suffice to say we both achieved success and bigger pectoral muscles!

In 2013 think about one achievable goal, make a commitment and share it with a friend or colleague. Depending on the goal it takes about 66 days for something to become a habit e.g. 50-sits ups a day vs drink one glass of water a day.

And remember “we must all suffer from 1 of 2 pains: The pain of discipline or the pain of regret” – Jim Rohn.

My commitment for 2013 is to become an author to write my book “Take Control” and the 7 Step Framework for pension funds to achieve full funding.

Respect the training! Honour the commitment! Cherish the Results!

Whats your commitment to be better and smatter in 2013?

Good luck!

Rob

Dear Santa, a Wish List for 2013

Dearsanta 600x200Dear Santa,

Despite the omens of approaching a year with the number ‘13’ in it, I am hopeful for the coming year and the opportunities for pension funds. Last year I asked for Eurozone Resolution, Lower Volatility and strength for pension funds to Act on Opportunities in my letter to you. I even dropped my tennis lessons with Rafael Nadal off the list, in the hopes of those wishes coming true.

I guess you thought I wasn’t a good boy last year, though, because I didn’t really get any of the items on my list. I suppose it was a bit greedy of me to ask for all three. You did give some of the third item, though, and allowed some key pension funds to take advantage of opportunities presented to them. For that, I’m grateful.

This year, I’ve learned my lesson and my wish list is much smaller. I’ve also been very good this year so I’m hopeful that you’ll bring me what I ask. I request only a few small things:

Pension Funds Achieving their Goals with Less Risk

Pension funds have been hit so hard for the last few years. There has seemed to be no respite from quaking markets and dearth of political bad news. Thankfully, there’s a silver lining and new opportunities that give pension funds the protection they need from liability-matching as well as the upside from growth assets, have appeared! This year, I hope for more opportunities like this for pension funds, so they can achieve their goals with less risk.

The Overhaul of GenY’s Saving Ethos (or lack thereof)

The pensions industry’s problems worsen as time marches on and the next generation fails to pay attention to the real problems. Even if we solve the problems of pensions today, we still face the abyss of the next generation’s lack of preparation and long lives. Gen Y doesn’t save, nor does it know how to invest. Why? When we are in the situation we are in now, despite auto-enrolment, why isn’t Gen Y, who will live longer and require more financial assistance, being urged and educated in the art of planning, saving and investing for retirement? This year, I wish for members of Gen Y proper financial education, and an investment solution that works for their savings. I would be happy to help with this one, you don’t have to do it all on your own.

An iPad Mini

They really are, so cool.

I really think I’ve been much better this year, please don’t penalise me for jumping off the Shard, it was in the name of charity I wasn’t just being mischievous.

Yours expectantly,

Rob Gardner, Age 34