On Friday 27th July 2012 the London Olympics inspired the world. Athletes in Team GB, such as, Jessica Ennis, Mo Farrah, and Andy Murray demonstrated to the world the ability to win gold medals and achieve incredible goals. What is the common thread of high performance that these and all other olympic athletes demonstrate? Can we learn from them and apply them to solve the global pensions challenge? I have identified 3, the importance of mindset, skill set and toolset:
(1) Mindset – On 6th May 1954, Roger Bannister crossed the finishing line at Iffley Road track in Oxford and broke the long standing record of the 4 minute mile. Before he broke it no one believed it could be done.
“Doctors and scientists said that breaking the four-minute mile was impossible, that one would die in the attempt. Thus, when I got up from the track after collapsing at the finish line, I figured I was dead.”
Roger Bannister
His feat started a rapid succession of other athletes who also broke the barrier. What was the key? A paradigm shift in thinking!
(2) Skill set – For years the traditional scissor kick was used to clear the high jump but in the Mexico 1968 Olympic Games Dick Fosbury revolutionised the sport with the new technique known as the “Fosbury Flop“. As athletes adopted this new skill they were able to set higher more impressive records. This new skill served as the catalyst.
(3) Toolset – Historically pole vaults were constructed from stiff materials such as bamboo or aluminium limiting the height pole vaulters could clear. But with the invention of a flexible fibre glass pole athletes could vault much higher than before. With continued innovation and improvement in tools the records continued to be broken.
In the world of GB pensions the best example of our pensions Olympic athletes is the Pension Protection Fund “PPF” which has embraced new thinking, new skills and new tools to safeguard pension funds. The PPF has set itself the equivalent of a 4 minute mile investment challenge. The Fund has set an investment strategy which balances between protecting members of pension funds whilst setting a fair and proportional levy. This is done by adopting the latest thinking and skills in investment strategy i.e. a bespoke liability driven investment “LDI” strategy. This LDI strategy targets an expected out-performance over the liability benchmark of 1.80% per annum with a risk tolerance of just 4.0% per annum of the liabilities. Which is just a 1/3 of the typical UK DB pension fund risk budget of 10-12%. In addition the PPF continues to use the latest tools to help it achieve its investment goals from
gilt repo to using 2 LDI managers with a single master custodian. If only all pension funds could apply the mindset of Roger Bannister, embrace new skills like Dick Fosbury and adopt new tools like the pole vaulters.
Note if you are interested in other successful pension funds its worth studying the Dutch and Danish Pension funds e.g. APG, ATP, and Pensions Danmark to name a few.
Like the competitive and challenging environment that Olympic athletes face. Todays pension funds must face a challenging world that is volatile, uncertain, complex and ambiguous. In order to meet this challenge pension funds need to become Olympic athletes in their field with the goal of creating predictable outcomes, and sustained superior investment performance in order to repair pension deficits and improve member security. Becoming an Olympic athlete doesn’t happen overnight. It is a journey, and like all worthwhile journeys it will be filled with significant challenges as well as exhilarating triumphs, just ask Andy Murray. To succeed we must think differently, learn new skills, and use cutting edge tools.