DC Multi Asset – Discussion
provide capital preservation and protec- tion, which we did in 2000, 2008, 2020 and last year, which is pretty invaluable.
We have moved into a different investment environment, and with
that comes cost. Lydia Fearn Partner
Lane Clark & Peacock
What is the investment strategy that you believe will appeal to DC schemes going forward? North: Avoid static allocations to fixed income. Go from nominal conventional bonds or conventional duration-linked assets to having some real assets or infla- tion- linked duration. Be more dynamic. Think differently about protection. Those would be the three main things.
Winterfrost: They will exclude all sorts without realising the consequences it will have on their portfolio. For many pension members, this might be their only sav- ings pot and there is a danger that they will be allowed to take poor decisions on the portfolio they are reliant on. Stewart: Engagement is definitely the preference. Where we start to lose faith is if the engagement is not successful, if there is no reciprocation to it. There is evidence that engagement can drive change and improve the risk profile of an organisation that you may be invest- ing in. You can add value for members longer term. To Jos’ point, we are moving into regimes where we have to change the way we think going forward. That applies to this piece as well. I struggle with the idea of just investing by taking a slice of the market as it looks today because most people agree that the world will look different in the decades to come. So, should we be investing towards what we think the world will look like in the future? We can’t predict that with
certainty, but should we start to align that way at least? I feel that there is a stronger investment thesis behind that. Expertise is then entrusted to manage that, but it requires a completely different mindset and more freedom in what we can do.
Jos, what is Ruffer’s preferred retirement strategy? Could you give us an insight into what you guys are doing? North: The role we are playing within our DC schemes is predominantly in pre-re- tirement, where essentially the diversifi- cation role that would ordinarily be pro- vided by fixed income can no longer be provided in a world of higher inflation. It does not matter whether it has a fixed end date, whether that be 65, or a deferred annuity or just needing to run growth, you need to have protection in the portfolio.
Whether it is building up the pot and pro- tecting it for that endpoint, or to protect against sequencing risk, you are trying to make sure that your pot lasts longer than it might otherwise do. It is the ability to
Issue 126 | September 2023 | portfolio institutional | 41
What will be the biggest investment themes of the next 12 months? Winterfrost: Illiquids, biodiversity and carbon. Stewart: To add to that, the pre-retirement piece is the crunch point for members. We definitely need to be on that. I’m supportive of illiquids generally, so I’m happy they are on the table. But we need to think about the crunch point for our members when they can have the opportunity to use their savings and pro- tect them. Pickering: I would rather think about what is going to happen in the next 10 or 20 years. One thing I am going to be grappling with is what are the implications of more and more assets being within private mar- kets rather than on public markets. And is that shift away from public to private going to have an impact? Or what will be the impact on our long-term strategy? Indeed, will the pendulum swing back with public markets becoming popular again, or are we going to have to live long term with more assets being restricted to private markets rather than public ones?
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