Multi-employer scheme The Pensions Trust has changed its investment governance structure to reduce bureaucracy, beating its benchmark in the process.
The trust currently divides investment governance into the roles of:
governing fiduciary, responsible for setting risk and return objectives, responsible investment policies and other parameters;
managing fiduciary, responsible for manager selection and asset allocation; and
operating fiduciary, responsible for day-to-day stock selection.
Governing and managing roles sit with the trustee board for most asset pools, but the trust is in the process of separating them out and putting its chief investment officer in charge of manager selection.
The scheme delegated the managing responsibility for its global equities mandate to its CIO David Adkins at the beginning of this year.
Adkins said: “We received the initial advice in 2013, then we did a further bunch of work assessing core competencies, what our skills gaps were both within the initial team and investment committee.”
You don’t want behavioural aspects to influence your decision, there’s a huge risk the best presenter will win rather than the best manager
David Adkins, Pensions Trust
The mandate was transferred in January with a benchmark of 0.5 per cent above the MSCI All Countries World Index net of fees annually. As of August, it had returned 0.97 per cent net of fees.
Alongside global equities, The Pensions Trust has four pools of assets: liability-driven investment, bonds, plus liquid and illiquid alternatives. It plans to delegate managing fiduciary responsibility to the CIO for all areas.
Outsourcing
Questions prevail among some schemes using fiduciary managers, in terms of where to place responsibility for different levels of investment governance.
The trust last year delegated an alternatives mandate to a fiduciary manager.
Carl Hitchman, partner at consultancy Hymans Robertson, said: “The question for trustees is how far do you want to delegate... You tend to see a strategic benchmark, the fiduciary might for instance have flexibility within a growth portfolio.”
Adkins said the scheme had also changed its manager selection process, avoiding beauty parades and removing past performance data to stop it from influencing decisions.
He said: “You don’t want behavioural aspects to influence your decision, there’s a huge risk the best presenter will win rather than the best manager.”
Gavin Orpin, partner at consultancy LCP, said reliance on past performance figures was a common bias for trustees, despite warnings over its importance.
He said: “The typical process is that clients, despite us saying past performance is almost the least important thing they should look at, that’s the thing they want to look at. Clients are generally not comfortable not seeing it.”
