A group of pension executives is challenging money managers to come up with long-term multiasset-class solutions to the pension liability problem.
The group has fashioned a list of questions designed to get money managers to think outside traditional strictures and come up with ideas for 20-year assignments to manage pension fund assets.
Executives from the £20 billion ($31.5 billion) Universities Superannuation Scheme, Liverpool, England, and the C$68 billion (US$45 billion) Ontario Teachers Pension Fund, Toronto, are leading the group. Both funds are known as innovators. Consultant Hewitt Bacon & Woodrow, London, is supporting the effort.
"We want to raise the level of debate," said Peter Moon, chief investment officer of the Universities Superannuation Scheme. "Pension fund managers' objectives should be more in line with the liabilities of the fund."
"We're looking for original thinking as to how fund managers approach their mandates," said Mr. Moon. "We're looking to get fresh ideas on the table and have a new debate over pension fund management."
Until now, liability matching was generally the purview of fixed-income investment management. But the group is looking for proposals that involve any and all asset classes, including alternative investments. "Some people might come up with a hedge-fund strategy," he said.
The group sponsoring the contest eventually will include 10 to 12 plan sponsors from the United States, Canada and Europe. They will "judge" the presentations, said Sally Bridgeland, head of quantitative investment research in Hewitt's London office.
"If someone comes up with a really good proposal, they will be looked at very seriously. It's likely they will get mandates," Mr. Moon said, although the final decision is up to plan trustees.
Open and provocative
In some ways, the process resembles a request for information or a request for proposals. But the questions "are more open and provocative," Ms. Bridgeland said. The questions were to be released March 3 on the USS website; at press time, they were being finalized.
To join the competition, enter the USS website at www.usshq.co.uk, then click on "special interest groups" and then on "competition."
"There are two essential elements to the questions," said Ms. Bridgeland. "We want managers that can deliver generally long-term and socially responsible proposals," she added.
By investing long term and encouraging good business strategies, the group hopes the new mandates "will make the world that pensioners retire into a better place. That's what responsible long-term business strategies should do," she said.
Mr. Moon said the questions "will be very open - we're asking them about their approaches to the mandate and how they expect to be judged on their performance."
"We want a broad input into the debate. There's been a lot of misunderstanding on benchmarks vs. liabilities and we want to get money managers working with pension funds," he said.
Need to be longer
Also, he said, the industry tends to think in terms of three- or four-year mandates, But the mandates need to be longer when investment management of the assets is tied to funding the liabilities, Mr. Moon said. "That's a hurdle we have to get over."
Mr. Moon said an e-mail address, available for about three weeks before the website was ready, generated more than 100 "expressions of interest."
"I'm quite optimistic that we'll get a lot of responses and very diverse responses in the way they (money managers) approach the mandate," he said.
Ms. Bridgeland said the proposals would have address issues not usually dealt with in current mandates. One is succession planning at a money management firm - since executives are likely to change during a 20-year timeframe. The structure of an organization - "making sure everything's aligned in the interests of the manager and the client" - also will take on greater importance than in traditional mandates.