London CIV – Interview
It is not just about communicating with 32 organisations. We have 32 clients, 32 shareholders, 32 pensions officers, 32 advisers and 32 consultants.
Our clients have been moving to private markets, so we have launched five funds: Inflation Plus, Private Debt; Infrastruc- ture; the London Fund, which is a social impact fund investing in infrastructure and property; and our flagship Renewable Infrastructure Fund. The joy of what we are doing here is that it fits in with increasing concerns about inflation. The infrastructure, renewables and property funds we are looking to launch will help our clients manage their inflation exposed pension benefits.
Is that why you have expanded into these sectors? Partly yes to get that inflation protection. If inflation is running at 5.5%, a scheme needs to make an investment return of 5.5% or their ability to meet their pen- sions benefits will recede. So, we need to make sure we keep up the pace. Our cli- ents are aware of that, and they also know that the core assets of equities and bonds may not help in paying long-term pen- sions. My view is that equities will proba- bly do a fairly good job of matching infla- tion over time. Bonds, sadly, will not. Many of our clients would question whether I am right about equities, but they all agree that bonds are a bad place to be and, therefore, they are looking for inflation protection elsewhere. Ergo, they
invest in property, infrastructure and pri- vate markets where they believe they can get inflation-like returns. Our London CIV Inflation Plus Fund typically invests in long-lease property. That is one of our fastest growing funds. Our Renewable Infrastructure Fund initially had £400m of demand but within six months grew to £680m with more clients coming in the future. It is growing faster than expected. That fund hits on a lot of the things peo- ple want, such as meeting net-zero targets and beating inflation.
Why will equities continue to rise?
Inflation has been matched by equities in the long run. My view is that when infla- tion moves from zero to 4% it is a great time to own equities. History has shown that when it goes above 4% it becomes “a little bit dodgy”. In the end, even in the periods when inflation goes above 4%, equities may not match inflation, but I am pretty sure they will outperform bonds. The other thing with equi- ties right now is that I would be wary that they could beat
inflation, but they will have a good crack at it. Equities, certainly in emerging mar- kets, offer yields which almost match inflation. A 3% yield does not quite meet inflation, but it’s a good start. The key driver for equities is earnings, which over time tend to go up. But again, a little bit of inflation is not a bad thing. If we are facing a lot of inflation, we need to question our allocation a bit more and maybe we need to look at other asset classes.
You have not mentioned the elephant in the room, which is monetary tightening. Could it hit equities? Historically yes, but we need to remem- ber that the way central banks behave has changed dramatically over the past 20 years. Because of the introduction of quantitative easing, the effect of interest rate moves will probably be less impactful today. We saw that when they came down, it did not have much impact, so it will be interesting to see what will happen when rates go up.
I am wary of the assumption that if infla- tion goes up, we will raise interest rates and then inflation will come down again. I am not sure it works that way. In my experience, they leapfrog each other.
JASON FLETCHER’S CV
2020-present: London CIV Chief investment officer
2017-2020: LGPS Central Chief investment officer
2016-2017: West Midlands Pension Fund Chief investment officer
1995-2016: USS Investment Management Head of Asia Pacific equities, deputy CIO, head of North American equities, deputy head of equities
1990-1995: British Airways Pensions Deputy manager of Pacific equities
Education:
1987-1990: The London School of Economics and Political Science (LSE) Bachelor’s Degree, Economics Analytical & Descriptive
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