Staying Classy – Sharing Ideas and Repairing Pensions Deficits

Last week, we at Redington released an annual publication called Asset Class 2013. It was put together by Redington Head of IC David Bennett and his team of consultants, who deal with over £270 bn of assets and the people who run those assets, on a daily basis, helping them to repair deficits and improve member security through smart investment strategy.

Asset Class 2013, much to our surprise, was the most-read and most-downloaded publication we’ve ever produced, by a long shot, with over 1000 downloads in the first day. It is a compilation of short articles that describe investment ideas that we believe offer some of the most compelling opportunities to pension funds and insurers this year. Some of them fit some clients’ needs, some don’t, but the purpose of the publication is to put on paper all those topics that our consultants are currently discussing with our clients of various sizes and types, and to share that with the rest of the industry so that more pension funds might be able to use the ideas to reach their own goals.

Although we were surprised at the figures – which far outdid editions of the same publication in previous years – readers have told us that there are a few reasons they received it so positively.

Now, more than ever, pension funds and insurers face an economic environment harsher than any they’ve faced before. The world has changed, and traditional investments no longer allow them to reach their goals of full funding; they are struggling to repair deficits incurred by the financial crisis and to provide the members of their pension funds with the security they need as they approach old age.

Investment ideas in 2013 must be smarter. They must offer up value from places no one has been looking. And not only must they do that, but consultants and those of us operating in the pensions space must turn pure opportunities into opportunities that pension funds can actually take advantage of given their governance frameworks and mindsets.

Our clients tell us they work with us because we focus on two vital points: defining the goal (for example, reaching full funding by x date), and then delivering – come hell or high water – the right investment strategy for clients to reach that goal within their immovable constraints. Asset Class is, essentially, the components of an investment strategy on paper for all to see. The information required.

Brevity and Clarity
As the financial world becomes more complex, and the investment solutions required to allow clients to reach their goals become increasingly tricky to understand and require a greater level of financial education, there is an unmistakable need for clarity in explanation.

No pension fund – with everything they have on their plates – has the time to trawl through incomprehensible banking-speak to try to find some value.

They need plain English explanations of investment ideas that are going to help them reach their goals.

In Asset Class this year, we dedicated an inordinate amount of time and effort to making sure the concepts we suggested were boiled down to their most basic explanations, we banned jargon, and we kept the minute detail out of it by linking to deeper-delving research papers and presentations so the reader could find out more if they wanted to.

Information is good; knowledge is good. But without a clear instruction – or at least suggestion – for what to do with that information, both are close to useless for most pension funds.

Imagine running a multi-billion pound pension fund with hundreds of thousands of members; it’s not just the performance of equities or future for credit that occupies the agenda. Pension fund trustees, their corporate sponsors and managers have to administer all those pensions, keep accurate records, employ people, balance their relationships, adhere to changing regulation, actually pay pensions, and keep track of investments while handling us unruly advisors and other helpers… These are not simple tasks. The performance of the assets and the condition of the liabilities may be in many ways the most important factor on the agenda, but it certainly isn’t the only one. Providing investment information – even of the highest quality – is unhelpful unless it includes a ‘so what’ clause at the end of it. So banks are getting themselves out of their utility swap contracts. So what? So infrastructure projects need funding and pension funds could provide it? Who cares? So the world of social housing has changed in the last couple of years. What’s it to pension funds?

In Asset Class, we only provided the bare essential information about the investment idea, and dedicated the lion’s share of each article to the ‘so what’ for pension funds. We figured that, if pension funds liked the ‘so what’, then they could easily go find further information either in one of our more in-depth pieces or from their own sources.

All in all, we wanted Asset Class to be a conversation-starter in the pensions industry. We wanted these investment ideas that Redington consultants are discussing with their clients to be public knowledge so that other pension funds might be able to take advantage of them, and we hope that, in producing that information in a way that was comprehensive, brief and action-focused, it achieves that goal.

If you haven’t seen it already, Asset Class 2013 can be downloaded free from our website.