The U.K.’s financial watchdog has a role to play in helping the pension fund industry and money managers to work to the benefit of members, speakers said Wednesday at the Pensions and Lifetime Savings Association’s investment conference in Edinburgh.
“Sometimes the market does need a shove to get the pendulum moving back in the right direction,” said Chris Hitchen, CEO of the Railways Pension Trustee Co. and its operating subsidiaries RPMI and Railpen Investments, during a panel discussion.
Addressing Tracey McDermott, interim CEO at the Financial Conduct Authority, who also took part in the discussion, Mr. Hitchen added: “(I’m) hoping that’s something you can supply. By analogy, in the (defined contribution) market, the cap on charges has changed the landscape in terms of what savers in that market have to be charged. I’m not saying I want more regulation, but I think there are things you can do to help us.”
However, Mr. Hitchen also acknowledged that there are areas where regulations do not necessarily help. “There is a certain amount of closet indexing, which actually regulation assists because there is a need for asset management firms to show that they have stable businesses, (and means managers) tend to want to take less risk with your clients’ money.”
Ms. McDermott said the FCA, which is in the midst of a market study into aspects of the money management industry including the questions of competition and value for money, is “very conscious … that we need to look at the regulations that have been introduced and ensure they are having the right effect.” She said the FCA, unlike its predecessor, the Financial Services Authority, has the specific objective and powers to promote competition.
“If there are things that regulation has created that get in the way of creating value for money for end investors, then we have to look at those as well,” Ms. McDermott said.
The issues hitting pension funds also need “constant attention,” said Andrew Stephens, managing director at BlackRock, who was also on the panel. “It seems that the persistent difficulties are a result of poor risk management as much as poor asset management,” failing to manage both sides of the balance sheet, which has been “a major contributing factor.”
Mr. Stephens referred to the fact that U.K. corporate defined benefit funds have huge deficits that had built up over a “supportive” economic environment — and that on a forward-looking basis, markets “look nowhere near as benign.”
“Part of the solution is the ability to navigate markets, find returns and help trustees arrive where they want to, but the other part is, let’s figure out what are the most important decisions that need to be made. There are some big decisions that I think could do with some great scrutiny, and asset allocation is one of the biggest. I would like to see some more dispersion in that market; then (we) can talk about value for money,” Mr. Stephens said.