I am afraid I have to report yet more moronic thinking from the investment community showing their disconnect with the ways and means of everyday folk.
Example one is from Lyxor, who used to be called Societe Generale until they screwed up and had to be re-branded. Here’s how they intend to change the world
A new approach to target-date funds could help pension funds adapt their strategies to the needs of their individual members in a more effective way to maximise retirement benefits.
The quantitative model from Lyxor Asset Management, outlined in the company’s White Paper How to Design Target-Date Funds, could provide optimal exposure adjustments to pension fund managers in changing market environments.
Traditionally, target-date funds are mostly invested in equities at inception when the investor is young, whereas the allocation will be more heavily weighted in bonds and cash as the individual nears retirement. However Lyxor’s approach takes the individual’s investor characteristics into account and proposes a tailor-made level of risk for each
The company stated that “incomes in major listed companies can be highly correlated to stock markets and therefore a pension plan for this sector should invest less in equities, as pension members could lose both their job and their savings during an equity crisis”. It added that pension funds in the public sector should however “have a high exposure to equities as their members have a very safe income and have a good position to take more risks”.
Lyxor emphasised that the equity-bond allocation depends heavily on the income profile of the investor. Pensions Age
Quite how a French Bank is going to assess the “individual characteristics” of a member of a workplace pension is not clear.
But the line is back to “needy people need low volatility funds“. This is code for “Buy high-powered DGFs and structured products sold by banks “.
If you can get through the gobbledegook of the press release you discover that Lyxor are suggesting that people with incomes in “major listed companies” are likely to lose their jobs when equity markets are depressed and should not have their retirement savings invested in – equities!… presumably because a dip in pension savings might push them into jumping from the the ivory tower.
Not only is this dim-witted but it shows that this French bank thinks we are even stupider than I had previously supposed them to think us- which is saying something.
The people in the private sector are the people whose companies set them up with risky pensions. If they weren’t prepared to take some risk they’d go and work in the public sector – unless they worked in a bank with a gold-plated pension that is.
They have also got it into their heads that the members of public sector schemes don’t have to worry about losing their jobs when the markets are down and want to invest in target dated funds. This is wrong with a capital “W”.
If Lyxor could come down from their ivory tower they might notice that very many public sector employees are currently losing their jobs as a result of their being no money in the public purse as a result of the recession which has resulted in share prices being depressed. Surely some correlation there!
They might also observe that public sector employees don’t use target dated pension funds because they are not in DC because they are in gold-plated final salary schemes.
If this is the kind of rubbish being churned out of the asset management arm of one of the City’s megabanks then God help us. These are the people being paid hundreds of thousands and bejasus, they come across as thick as p*gsh*t.
My second example of corporate cobblers come from some old friends who work for a rival consultancy and who are as well meaning as they are wrong!
An overhaul of defined contribution risk management is crucial to garner trust and for the success of auto-enrolment, say scheme and investment managers.
“The consultant” said: “DC strategies haven’t focused enough on investment risk, which so far has involved putting more focus on getting as good returns as possible using risky assets that haven’t necessarily delivered – and that’s really harmed DC.
“Members look at them and see asset values moving up and down quite dramatically.”
He said managing and communicating investment risk is “absolutely vital”, particularly for those who end up in the default fund, and don’t have a great understanding of financial markets and pensions. Actuarial Post
Let’s get something straight- equity market risk is not a bad thing to take when you are some way from retirement. We have been telling the trustees of occupational pension plans this for ever and a day. Without the equity risk premium, most of our DB plans would look so underfunded the only scheme left in the land would be the Pension Protection Fund.
So why are these investment wallahd telling people who are enrolling into DC plans that these “risky” assets aren’t for them? Should they not be explaining that without taking some risks when you are young, the amount you have to draw in retirement will be so small you’ll wished you hadn’t bothered?
Shouldn’t they be explaining about pounds cost averaging?
Shouldn’t they explain that paying high charges does to your pension fund what putting 12 stone on a horse’s back does to its chance of winning the Derby?
Please don’t think that I have anything against Lyxor or against investment people in general. I just wish they’d stop talking cobblers.
I invest in equity based default funds myself and had a laugh at my friend’s reference to
those who end up in the default fund, and don’t have a great understanding of financial markets and pensions.
We don’t all talk cobblers! Some day I’ll post about my friend David Hutchings who does “get it” and is doing his best to enlighten people about how to invest for the future properly (oh alright – you can read what he has to say about “volatility friend or foe?”here)
- Why I support Labour’s attack on pension charges (henrytapper.com)
- What Steve Webb must do now. (henrytapper.com)
- Increase In Pension Fund Investments Makes For Headwinds In Andean Market (seekingalpha.com)
- Pension funds warned over fees – Confused.com (confused.com)
- Workplace pensions: A guide to auto-enrolment (confused.com)
Well said that man, well said.
Well said, until you repeated the pensions myth that pound cost averaging is always a sound proposition. Regrettably, it is not and it has been disproved both academically and practically speaking/reading.
Henry – Go and stand outside the Head Master’s office. Sedition is not encouraged in this school.
Incidentally I would love to see the academic disproof of pound cost averaging.
Very good of you to Con – we should of course play in your sunny uplands! Though I am staring out over the Channel to the Isle of Wight, with waves sparkling in the morning sun, I feel the dead hand of corporate cobblers (Simon Kew’s phrase) upon my shoulder.
The long walk to the study – the ignominy of the punishment – all worth it!
I think you and I sat together and heard an explanation by Schroders about how we needed LDI in DC…didn’t that set out to disprove the benefits of pounds cost averaging?
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I went to a presentation once. I wanted to buy some investment expertise. One chap said,
‘…. well we have a few ideas and theories but there’s only 20 of us. We don’t have a marketing department, so forgive our lack of style and salesmanship.’
‘Well’, he said,
‘… we think we shouldn’t get paid unless we do well for you and your pension scheme. In fact, we’ll just charge a small retainer and not bother with hourly rates etc. If we take a holistic, common sense approach based on our sound principles then you’ll do well with us. We just expect a sort of bonus each yea if we do well. And we usually do, over the medium to longer term. And I can show you some examples.’
And he did. And they were good.
I said to my fellow trustees:
‘These guys are brilliant – let’s appoint them!’
After all I had short listed them with a bunch of others – you know the types, big, medium, but whatever, they were expensive and brash, but slick marketing etc.
But these little guys owned some of the business with some other guy from a tax haven who was rich, or something along those lines, and they seemed to know what they were doing, and cut through all the cr@p!
I loved these small guys. And they have done OK. The ‘Harry Redknapp’ of the consulting world, no less!
Oh, and they’ve got several clients in the construction field, oh and one other you might have heard about – a bit expensive, but impressive results with their pet fund managers, etc. Seem to pick the right managers, and clients love them, even though I would call them the thinking man’s ‘Allied Crowbar’.
St James Place Capital.
Yes, I know, I wouldn’t either, but didn’t they do well?
But First Actuarial are in the same space – honest and well meaning. Nice chaps and chapesses.
Thanks Stephen – on behalf of us all!
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