Feature – Selecting an asset manager


one hasn’t out thought the rest of the market why not just go passive,” he asks rhetorically.


Playing the long game


The questions posed in the selection process can be as generic as asking about the investment process. But the problem is not a scarcity of clever individuals at asset managers but the oppo- site: a superabundance of them, all working with the same information in the public domain. How then to distinguish between them? “We have fundamentally come to the opinion that choosing a manager on the back of a short presentation who has been shortlisted without any reference to what you’re looking for on a principals basis does not work and that is the process used by the majority of pension schemes typically,” Ghosh says. The Nationwide Pension Fund appoints asset managers fol- lowing a long process of review and due diligence with input from its investment consultant. Among the topics it considers are investment philosophy, culture and strategy, past perfor- mance, fee structure, individual track record and portfolio management process. Also examined are exit strategies together with what lessons have been learned from previous investments, ESG policy, risk management policy and mitiga- tion and information and cyber security measures. Trevor Castledine, who was formerly deputy chief investment officer and private credit investment director at Local Pensions Partnership (LPP) and before that deputy investment officer at Lancashire County Pension Fund, says that his role was setting investment strategy and appointing asset managers to help execute that strategy.


The two local authority pension schemes had clear ideas about what they wanted to invest in. “We always went out to the market. You need to do a very deep and wide search and see all the different offerings,” Castledine says. “It is also important that it is known that we are looking at a wide range of asset managers, they then compete and we pick the best price.” He stresses the importance of a manager meeting the pension fund’s needs in terms of risk/reward and geography. “We were making sure we could build the portfolio we wanted rather than take the portfolio someone offered to us, but it was always my investment decision at the end of the day,” he adds.


Strength in numbers


The number of asset managers employed by pension schemes varies. Centrica has between 10 to 12 asset managers, while Castledine says that at LPP there were originally around 20, who were then reduced to around 15.


“The direction of travel was to consolidate while considering the transaction costs, but the use of multiple managers ena-


32 | portfolio institutional February 2020 | issue 90


We had the means to write investment commitments in the hundreds of millions of pounds; that certainly gets you into the VIP lounge.


Mark Hedges, Nationwide Pension Fund


bled us to hire the best manager in each strategy and in each jurisdiction,” he adds. “We could have just appointed a multi- asset credit manager but while I have the utmost respect for them it’s difficult to see them as best in every class.” Meanwhile Nationwide’s Pension Fund currently has around 50 asset managers with different ones leading different strate- gies, most of whom are operating in private markets. Each one has their own strategy often based around jurisdiction and are very much specialists, Hedges says. “We had the means to write investment commitments in the hundreds of millions of pounds; that certainly gets you into the VIP lounge,” he adds. At LPP, which had a proactive, rather than reactive approach to asset allocation, in some cases portfolios were built internally. Two or three managers would be selected in each class, with the exception of opportunistic credit, which is a more eclectic class and would have five or six managers.


Above and beyond As highly-trained specialists, asset managers are themselves assets to a pension fund. Thus Centrica views them as its eyes


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46