Discussion – DC Multi Asset


Pickering: I’m keen on broadening the asset classes that DC members are exposed to and I’m keen on finding roles for active managers, but I don’t want to end up with churn. Next year we will be investing in a lot of what we invested in this year, but it might need tweaking. We don’t want to get so active that we almost become day traders. We are talking about a 50 to 60 year time horizon, so it is more tweaking, nuancing and reviewing. Then having reviewed, it is about implementing decisions quickly, rather than creating an atmosphere that encourages churn.


A lot of members these days want to use their money to make the world greener and fairer. There’s a lot to consider when fol- lowing such strategies, so how is that going?


Winterfrost: There two aspects to this. One, what do your members want to do that’s based on their values and morals, but isn’t a financial decision? And two, what do we think is the right thing to do as trustees for the bulk of our members? It is generally accepted that if members have a good reason to invest in a certain way it will encourage them to save more, so offer the options they need. But it


comes with a risk. If you start labelling some self-select options as green, some members are probably going to pick them because it fits with their own stance, rather than because it is an appropriate investment. Risk should come first. There are dangers with fund labelling. But within the defaults, where we are making the decisions, it is about under- standing the risks we are managing and what the opportunities are from incorpo- rating ESG. It


is widely accepted that


there is an impetus behind transitioning to a lower carbon economy and, therefore, one can tilt the portfolio in that way and reasonably expect it to be a return enhanc- ing or risk reducing measure. Trying to address biodiversity is going to be more of a challenge, but the transition isn’t going to be successful unless we deal with the biodiversity question. They are linked. But we are much further behind with biodiversity. We have measures for carbon, which are universal, are global, whereas the biodi- versity metrics being touted are local, making it hard to think of them in the context of a global portfolio.


If you do not appoint a manager that rec- ognises and understands these issues and will engage with investee companies and


then make decisions on your behalf, then you may end up invested in a company isn’t managing these risks. That is a finan- cial risk and it may become un-investable. As a trustee, we have to delegate quite a lot of this by picking the right partners. Pickering: At the risk of sounding elitist, I am in the camp of engagement, rather than exclusion. The danger is that if mem- bers are in charge of their investment allocation they will go straight to exclu- sion. They will watch a TV programme tonight and tomorrow they will exclude any of their assets that were badly reflected in that programme. With engagement you get two bites of the cherry. You might be able to make the world a better place and you might be able to improve outcomes. Then we have to tell members what we are doing through our engagement strategy. If they want to drive their money to reflect their values, a self-select Isa is the right route rather than the pension scheme. Pension schemes are capable of being well governed by the people around this table. Members should be told what is going on and that we are doing good stuff, but not have a plebiscite every day as to what should be excluded.


We are not a nice little piggy bank which is effectively there to be raided to boost the lat-


est political agenda. Jenni Kirkwood


Senior DC investment consultant Mercer


40 | portfolio institutional | September 2023 | Issue 126


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