Interview – The People’s Pension
INTERVIEW – NICO ASPINALL “We are not a passive investor.”
The People’s Pension and B&CE chief investment officer tells Mona Dohle about managing rapid growth, steering the scheme through the pandemic, having a high active share and what the future of DC investing could look like.
Your assets have almost doubled to £11bn in just two years. How are you managing such growth? We invest in pooled funds. There are 17 of them, which are mostly life company pooled funds managed by State Street. Essentially, we have a manager of manag- er-type structure. We use Northern Trust as a custodian to create multi-asset funds out of our portfolios, which is quite a scal- able model. Some of those flows you mentioned are obviously due to market returns with 2018 and 2019 being stellar years, but a lot of that, between £2.5bn and £3bn a year, are contributions. We invest those contributions making sure that there are asset allocation tools to point those flows in exactly the right place.
The Covid pandemic is having a dramatic effect on the global economy. How is this affecting your scheme? The biggest impact has been on the oper- ational side. Before the pandemic, the team worked in an office five days a week,
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with Northern Trust and State Street at- tending meetings in person. But in March and into April we had to understand how to work in a home environment. This involved organising things like hav- ing Bloomberg terminals in peoples’ homes, supporting our suppliers and just making sure that the control environ- ment was not weakened. My role is not just at the People’s Pension but also involves many other responsibili- ties for its parent company B&CE, some of which required wet ink signatures with managers. Moving a lot of our legacy pro- cesses, such as signatures, onto online processes was a big part of the challenge. Operationally, the move into working from home was a big event and we cer- tainly identified a lot of risks in the world of the unknown. These included
the
impact on markets. Will our funds still be able to price if markets close? Will central bank close markets for reasons of market panic? There are many other pieces of operational risks that we were tracking. I know asset prices were not exactly
smooth and orderly but there were a few big risks that we were focussed on in terms of the markets. Some emerging markets were closed for periods and we were conscious of that.
On the investment side we are most con- cerned about currency risk. We are a long- term investor and so we understand that equities can be volatile, but they have probably been under-volatile for quite a period. March was probably more than we expected but it is part of a broader return to normality in terms of volatility. We were focussed on sterling’s precipi- tous decline in March. We have a deriva- tive overlay for our currency hedging. That is how we hedge our US, European and Japanese exposures, so as sterling was falling we were conscious of the big negative cash-flows that were coming. We had to do quite a lot of work to make sure those could be covered and that we would not be forced sellers at low points in the cycle. But to some extent this reflects a welcome return of volatility. If I look at 2019, in
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