Selecting an asset manager – Feature
and ears on the markets. Chetan Ghosh stresses the necessity of asset managers having a long-term investment vision and being alert to any potential pitfalls that could lose a fund capi- tal permanently. For the majority of pension schemes, asset managers are the hands-on implementers of allocations to a particular asset class. But the Centrica Pension Fund wants more from its asset managers, says Chetan Ghosh. “In terms of how we interact with them, we are seeking a bit more than go and implement that for us and do nothing else. We use them as a material source of intellectual capital in relation to what’s going on in the markets.”
That the intricate footwork of the institutional investment dance requires highly-trained professionals is a matter of con- sensus in the industry. Most pension funds do not have the resources or skill sets to invest directly, so asset managers are vital. While Ghosh says he finds asset managers a fundamentally important part of the investment food chain there is a problem in that there are too many of them and they are hamstrung by what advisers tell them they are and are not allowed to do. Centrica has low turnover of asset managers, who Ghosh says
tend to be retained for an average period of in excess of five years.
“I think part of the reason for that is we are buying an invest- ment process not trying to mould someone into what we want them to be,” he adds. “So if they have periods of underperform- ing a market index and it’s consistent with what we would expect that manager to do in that environment we would be much more tolerant.”
The degree of oversight and autonomy exercised over asset managers differs from pension scheme to pension scheme.
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 process through thick and thin. Chetan Ghosh, Centrica Pension Fund
The X factor Neil Mason characterises Surrey Pension Scheme’s relation- ships with its asset managers as “open-ended” and says he understands that returns are driven more by asset allocation than stock selection. The Nationwide Pension Fund, however, tilts responsibility towards the asset managers. “Typically responsibility lies with the asset manager as you are buying into a fund unless it is a segregated mandate whereby you can specify constraints that limit the fund managers ability to invest in only proscribed instruments, securities, equities that meet the terms you set,” Hedges says. While the Royal Mail Pension Fund gives its asset managers total autonomy and the Nationwide Pension Fund has a similar approach, Centrica tends to split responsibility for investment decisions between in-house and external teams. Although the selection of securities is the task of its asset managers, much of the asset class positioning is driven by its in-house team. The division of responsibility in Centrica is illustrated by means of the theoretical example of a manager who invests in high yields. Day-to-day they will select the securities and might marginally favour high yield to the extent that the allocation moves from 50/50 to 70/30. If, however, the fund believes one asset class isn’t going to do nearly as well as another then accordingly that money should be moved. It understands the manager is unlikely to move as much money as it wants and Centrica’s in-house team will supersede the asset managers and make physical allocations accordingly. Yet for all this, could pension funds conceivably not use asset managers at all? The consensus is that they could not. The carefully choreographed dance between investors and asset managers will remain at the heart of pension funds for some time to come. “I don’t think it’s realistic to say I’m going to ignore managers and just buy passive options; you don’t have passive options in property, in private debt sub-investment grade lending or any of the long income-type strategies being used by UK pension schemes,” Ghosh says. “You could argue a theoretical case, yes but I don’t think realistically it’s workable.”
Issue 90 | February 2020 | portfolio institutional | 33
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
