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Fiduciary management: Everything under one umbrella
Tim Dougall
Lisa Purdy
Legal & General Investment Management’s Tim Dougall, head of investment advisory, and Lisa Purdy, head of fiduciary distribution, explain how their fiduciary management clients benefit from the insurer’s scale and wider expertise.
What conversations are you currently hav- ing with defined benefit (DB) pension schemes? Lisa Purdy: A big one is the markets. There is a lot of uncertainty around, with Brexit and trade wars in particular concerning cli- ents. That leads straight to a focus on how they can protect themselves from some of these risks, but also capture any opportuni- ties. That often brings it back to a conversa- tion about governance challenges. Tim Dougall: Another topical area of dis- cussion is buy-outs. The markets have been strong in recent years and that has helped a few schemes get closer to buy-out. I helped one of my clients reach their endgame this year.
In the markets more generally, there have been increasing discussions about illiquids. But we see schemes invested in illiquid assets unable to buy-out because they can’t transfer their assets. We find it puzzling that some of the potential pitfalls of illiquid assets don’t get more press.
Is ESG being raised more and more by your clients and potential clients? Purdy: It is definitely a hot topic. With the
DWP’s guideline changes and ESG required to be included in their Statement of Investment Principles, it is on clients’ agen- das. It has been good for us because Legal & General has had a clear ESG policy for a long time.
When it comes to fiduciary management, ESG is implemented consistently across our client portfolios. We employ active vot- ing policies in countries where we have sig- nificant public equity holdings. As a result, we vote 99% of the total value of our listed equity holdings. That engagement helps to make a difference for our clients. Our clients can also take that a step further if they want to include funds that have ESG tilts, which could mean leaving out compa- nies that solely produce coal or companies that manufacture controversial weapons.
What is your investment philosophy? Dougall: Asset allocation, risk manage- ment and cost control are the key areas we focus on. LGIM having the capability and expertise to invest in all the asset classes that we need makes it easier for us to focus on asset allocation and risk management. It is also more cost effective.
44 | portfolio institutional | November 2019 | issue 88
Studies show that asset allocation is impor- tant, and most people say they focus on it, but many actually spend their time on man- ager selection. A Competition and Markets Authority (CMA) study last year showed that manager selection activity does not add a lot of value. So our focus is on asset allo- cation, risk management and cost control.
With reports that we are in the early stages of a global slowdown, how are you manag- ing risk in your clients’ portfolios? Dougall: It is probably one of the least attractive times in the last five to 10 years to be taking risk. But the risks are actually still balanced - investor sentiment is quite nega- tive, and maybe the fundamentals are not supporting that as fully as they could. So we are neutral on risk overall. Because of the increased uncertainty, some- times we implement selective protection using options. That gives us exposure to the upside with some downside protection.
I have read that most schemes are invest- ing passively when it comes to equities. Is this changing? Dougall: On the equity side, LGIM is
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