Editorial: Switching it up

But is it always worth the cost? The latest industry expert on our soapbox is the Affiliated Managers Group’s Andrew Dyson, who argues on this site that switching underperforming managers is often counterproductive in terms of cost and misses out on the upside.

“It takes a lot more courage to stick to a conviction than to change it,” he argues. One look at Andrew’s job title and the inclination is to deduce, ‘Well, he would say that, wouldn’t he?’.

But that would be unfair. It is clear from his example that, taking a manager that is upper quartile over a 10-year stretch, it would have been a poor decision to have ditched it if it hit the bottom quartile over a three-year rolling period.

Illustration by Ben Jennings

Stick to your convictions then, with the tiny assumption that you know your convictions are going to be right and you have picked a manager that will be in that top quarter of the table over a longer period. That of course is a little more difficult.

I agree with Andrew that it is good not to get bogged down in the active versus passive debate. At the same time, it is not surprising when pension fund investors, admitting they are not soothsayers, try to control the only thing they can: the cost of investment.

Elsewhere in this week’s Pensions Expert, it is great to see governance getting a run out. Essex Pension Fund’s deliberations reflect the challenges being faced by local authority pension funds to make sure their representative bodies fit tougher regulatory requirements.

Governance is vital across the industry. The decisions have always been difficult, but for defined benefit pension funds time is shortening to make up any lost ground as demographics are shifting.

When it comes to investment, scheme investment managers may well decide they don’t have time to hang around for better weather.

Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.