Feature – Selecting an asset manager
PICKING A CHAMPION
One of the central relationships in the balletic performance of a pension scheme is that between a fund’s chief investment officer and its external asset managers. Their carefully choreo- graphed investment dance should, all going according to plan, produce a performance of rare beauty. Surrey Pension Fund is currently conducting a review of its asset managers. It testifies to the importance of the relation- ship that a review is not to be executed at a rushed pace. According to Neil Mason, head of pensions at Surrey Pension Fund, the object of the review is for the scheme to establish all the metrics that fit into the fund’s overall risk analysis. Risk and how much to take, has always been at the heart of investment decision making. Yet the concept itself has evolved over time.
“Whereas before we looked at currency risk and political risk, now we are more holistic and will also look at ESG risk,” Mason says. “We are also looking to see that the risks are consistent with the return profile of the scheme.”
Risk is justified by return and is the basis on which asset man- agers are ultimately assessed. However, different pensions take different approaches to the question of the best way to measure asset manager performance. While Surrey Pension Fund sets a performance target for asset managers, who must meet the fund’s discount rate, the Centrica Pension Fund has what its chief investment officer, Chetan Ghosh, describes as a “differentiated approach” to tar- gets. The fund eschews setting targets and benchmarks for its asset managers to meet. “We uncover managers who have their own process that they will not change for any client; it’s up to us to buy into that pro- cess through thick and thin,” Ghosh says.
30 | portfolio institutional February 2020 | issue 90
Want to find an outperforming asset manager? Catherine Lafferty explains how.
“We will find our own ways of tracking whether that manager has done well over time but do not set them targets. A massive problem in the investment management community is when people unduly constrain their managers to overly focus on an index or outperformance target without actually focusing on best cumulative return outcomes,” he adds. Surrey Pension Fund sets each of its asset managers their own discrete targets. Mason agrees that there are limits to the utility of benchmarks but believes they can assist individual manag-
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