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known as an index house and we are glad to see the world coming around to our way of thinking. We have a focus on asset allocation and want to access asset classes in the most cost-efficient way. An index approach is a good way of doing that.
In the fiduciary management space, many consultancies try to outperform the bench- mark and select lots of asset managers. That, for us, is not the area that adds value.
It is worth saying that being indexed and being passive are not necessarily the same
How are you easing the governance bur- den that pension schemes are increasingly carrying? Purdy: We have a three-step process: advise, manage and monitor. Understanding the client’s needs, where they are trying to get to and how much risk can they afford to take is vital in setting a plan to reach their endgame.
The fiduciary manager’s job is then to build that portfolio and make sure it continues to work, by making it robust for different mar- ket environments and dynamic enough to be able to react to those conditions.
trades in the middle and everyone benefits. You only get that because of our scale. Purdy: On the smaller client side, one of the points of fiduciary management is to enable them to access a wider range of opportunities but at a lower cost. We pass on the economies of scale of Legal & General, so our fiduciary management cli- ents benefit just as our largest clients do.
It is probably one of the least attractive times
in the last five to 10 years to be taking risk. Tim Dougall, LGIM
thing. For example, we access through index, but we do not just hold a global mar- ket cap. We focus on which equity regions to invest in at a particular point in time and can implement through smart beta strate- gies as well.
What benefits do you bring to trustees? Purdy: Having
everything under one
umbrella means that we can focus on asset allocation, risk management and cost con- trol in a holistic way. As the UK’s largest pension fund asset manager, number one liability-driven investment (LDI) provider and having an experienced and well-respected team of asset allocation spe- cialists, we are the only provider who brings those capabilities together for the benefit of our clients. We have strong performance from our growth funds and a focus on cost control, which are two tangible examples of deliver- ing value for our clients. The other point is around buy-out. Our link with the wider Legal & General Group means we can help trustees on every step of their journey from where they are today, which might be relatively immature, right the way through to self-sufficiency or buy-out.
The final piece is monitoring. As a fiduci- ary manager you want to show clients all the details of the portfolio, but not all trus- tees are interested in reading a 50-page report. We break that down into a two-page sum- mary, containing the actions trustees need to take, whether they are meeting their objectives, any changes to the portfolio over the quarter and our views on market changes.
How do you provide value for money? Purdy: With the CMA review, costs and transparency have come under a lot more scrutiny. We are pleased with that. It is something we have focused on for a long time.
It is not just the fees, but also the ongoing costs of a portfolio. There are a lot of hid- den costs that are often overlooked, such as administration, legal and custody, all the things Legal & General has focused on minimising as much as possible. Dougall: Because with us everything is under one roof, it is easier to trade without incurring costs. We manage assets for more than 2,500 schemes, if one wants to sell an asset and the other wants to buy it then we cross those
Are defined contribution (DC) schemes taking an interest in fiduciary management? Dougall: Fiduciary management in the DC space is a little different in terms of delegation. As well as our master trust we offer pack- aged funds, which are target date funds where you are em- bedding the investment philos- ophy in the fund and making it easier for people to access.
It is delegated management, a structured solution in a fund. We do not provide investment advice on the DC side at the moment.
What can we expect from LGIM’s fiduciary team in 2020? Dougall: We want to serve UK DB pension schemes and because of LGIM’s large cli- ent base we have a pretty good insight into the issues schemes are facing. What we have noticed is that the larger pension schemes have been well served by the fidu- ciary management market, but smaller schemes have not been able to access it cost effectively, because of the cost of servicing those clients. We are exploring ways to deliver something for the smaller schemes in a constructive way using technology to implement a solu- tion that will help those schemes. More on that is coming next year.
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