Pension fund executives and their money managers must “invest smarter” if they are to ride out stubbornly low interest rates, increased longevity and other external factors, while continuing to deliver value to participants.
That was the overarching theme of the annual National Association of Pension Funds investment conference, held in Edinburgh, March 11 to 13.
“It's about the recognition that, in a low interest (rate) world, every pound lost in inefficiencies or excessive charges is a pound lost in return,” said Ruston Smith, chairman of the NAPF, in his opening speech to delegates. Mr. Smith is also group pensions director of Tesco PLC, Cheshunt, England, which has a £8.4 billion ($12.6 billion) pension fund.
Later in the conference, Mr. Smith cited the £21.1 billion Railways Pension Scheme, London, as a good example of a pension fund that “invests smart.”
Chris Hitchen, CEO of RPMI, which runs the pension fund, presented a case study of changes made to the management of its 110 different sections.
In 2013, the pension fund called on Roger Urwin, London-based global head of investment content at Towers Watson & Co., to oversee its “investment transformation project.” The pension fund had followed a multimanager, outsourced model until the financial crisis hit in 2008. There was “realization subsequent to that, that double-digit returns probably weren't coming back for a long time,” Mr. Hitchen said. “The outlook remains for essentially financial repression, low interest rates and low returns from assets in general. In that environment, you have to think fundamentally about the way you go about investing institutional money, and really make sure that you do it as effectively and efficiently as you can. And don't leave anything on the table.”
Mr. Hitchen said the pension fund's executives spent eight months formulating a plan for the future, with a “very, very long list of things to do — 400-and-odd things.” He said they are nearly through that list.
“We have been quite lucky that not too much has gone on out there … in investment terms. Central banks have continued to rig the markets and given us some breathing space to actually make the changes we needed to make. And actually that's probably very important in helping us to create an environment for future success.” Mr. Hitchen said.