Fiduciary management – Sponsored article
we are providing a bespoke solution to individual small schemes.
How will this platform help smaller schemes to improve their governance? Purdy: One of its many benefits includes being a useful tool for consultants and professional
trustees who work with
smaller schemes. Some of these schemes tend not to have a dedicated investment consultant, so the professional trustee, actuary or pensions manager picks up a lot of this work. So, this can be used to provide better outcomes.
They are gaining access to all of LGIM’s fiduciary management services, includ- ing strategic advice, implementation and monitoring, which will enable professional trustees/consultants to sup- port their smaller clients. Because of the way the solution is built, they can manage multiple clients on the platform. It is a quick and easy interface for them to pro- vide smaller schemes with access to low cost and more efficient portfolios. LGIM NavGuide also provides portfolio analytics. If they are looking at strategy and want to know what the impact of a change in deficit contributions would be or looking at a lower or higher than expected return, they can do that in real time. There are lots of tools for clients and consultants to use.
What would a typical investment strategy look like for a scheme that does not have diversification or interest rate hedging? Dougall: Smaller schemes who have not had access to strategic advice will proba- bly have a relatively simple portfolio of UK equities, gilts and perhaps some cor- porate bonds, so not much diversification. Perhaps they have not thought about the overall level of risk either. We are targeting the schemes where we think there is a lot more that can be done. We will get alternatives and more dynamic strategies into the portfolio and look at bespoke liability hedging to match their liability cash-flows.
It is the smaller schemes, the ones with little or no governance budget, diversification or risk protection, that suffer the most.
We still give trustees the opportunity to tweak things such as the level of ESG integration they want and the level of liquidity they would be comfortable with. These will be scheme specific and consid- ering that on a scheme-by-scheme basis is what we aim to do. Purdy: The other piece of that is the jour- ney planning and managing a longer- term strategic objective. It is the smaller schemes which do not have the time to focus on those strategic objectives. We can put in place a plan and de-risking trig- gers and monitor them, so they get the whole package.
How is ESG being integrated across your portfolios? Dougall: Across LGIM, ESG is considered as a very important issue. Therefore ESG considerations are fully integrated across all of our fiduciary portfolios through our active engagement and the work of our investment stewardship team. If clients wish to go further than that by having full ESG integration we can use our Future World funds to build a bespoke portfolio, which means tilts towards companies and stocks that have favourable ESG ratings. There will also be some exclusions of companies that are blacklisted on an ESG basis.
Finally, could you tell me more about the route to buyout for smaller schemes? Purdy: Legal & General is a large insurer so we can provide a seamless route to buyout. For our fiduciary clients, we provide live transactable buyout pricing as part of our NavGuide service. It is an actual price (not an estimate) that they can take and we can monitor going forwards.
Once our clients hit a particular funding level we can move the portfolio into price lock. This means that while they are sort- ing out the legals, for example, their assets will not move away from the price, so it is immunised. Once that is sorted, we can transition the assets to Legal & General at zero cost.
They are not locked into Legal & General, they can go out to the market but the live buyout pricing and support on their tran- sition is just part and parcel of the service we provide.
Issue 97 | October 2020 | portfolio institutional | 17
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