Editorial: Education v condescension
Mext week we will start to publish in print, and later online, a roundtable discussion on exchange traded funds and the role that they can play in pension scheme portfolios.
ETFs will be a novelty for many schemes: partly because investors, and in some cases consultants, have not had much prior knowledge or contact with them, but also frankly because some of the gatekeepers see them as an unsuitable investment.
We hope that our discussion helps to bring some detail and some challenging questions on this subject. But whether or not schemes conclude ETFs deserve deeper consideration, these projects always leave me thinking about what the industry calls "the education piece" and the interests underlying it.
The trend towards greater professionalism of pension scheme governance, from the rise of professional trustees to the growth of the delegated investment industry, has both been triggered by, and has fed into, more complicated investment products being used as part of schemes' investment strategies.
Indeed, one of the questions raised at the roundtable was whether trustees are really going to be able to explain fully what a physical ETF, let alone a synthetic ETF, does, and how it works.
Illustration by Ben Jennings
But the same question could be raised on the more complicated components of an LDI strategy, for example. Does it matter if a trustee could not explain a swaption down the pub, if they understand the wider purpose and risks of the investment, and take expert advice?
Obviously trustees do want to know what is going on, and have an obligation to do so. The London Pensions Fund Authority's decision to take its money out of Brevan Howard is just the latest example of investors insisting on understanding what is going on under the bonnet.
But education elsewhere can be simply the first part of the sales process, as managers offer free tuition to lay the ground. This is hardly a secret.
And journalists have to be aware of our role in this, as we seek to bring simplicity to the more complicated areas of the pension scheme industry.
That makes it evermore crucial that schemes understand the dynamic between education and who is doing the educating.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.