Cover story
Halloween could be a day that divides Brit- ain. For some 31 October will see Britain free itself from the shackles of the European Union (EU), while others fear the country might enter a period of economic hardship and geopolitical isolation. Irrespective of one’s political orientation, Britain’s exit from the EU will have been high on the agenda at trustee and investment manage- ment meetings since the country voted to leave more than three years ago. Pension schemes are bracing themselves for a triple challenge from Brexit. The UK’s exit from the bloc is predicted to hit fund- ing levels and the employer covenant while greater volatility and a weaker pound could negatively impact investment portfolios.
The question is, have pension schemes, which are traditionally reluctant to make temporary policy changes, revised their strategies ahead of the big day? And what are the main operational challenges that they might face?
INVESTMENT STRATEGY Most schemes have not released a state- ment about their investment strategy on Brexit given the unpredictability of the out- come. Moreover, schemes do not want to give the impression that their investment decisions could be driven by short-term tac- tical moves, rather than long-term strategic asset allocation. David Cox, Brunel Pension Partnership’s
head of listed markets, says that his team are aware of the turbulence that could hit financial markets after Halloween. The £30bn pool, which brings together the investments of 10 local government pen- sion schemes, has a decentralised structure whereby each of its local pension funds continue to hold fiduciary responsibility. As a result, the level of adjustment to Brexit varies between the individual authorities. “We are conscious of rising volatility in the market increasing transition risk,” Cox says. “We have not changed our well thought out investment strategy, although we remain agile enough to respond as necessary.” Anxiety around Brexit ties in with fears
30 | portfolio institutional | September 2019 | issue 86
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