“Three into two won’t go”- NO EXIT at Playpen lunch!

henry tapper

11 years ago

At the suggestion of Maria Doyle, the Playpen sat down to discuss “what makes for an ideal default“.

There were three camps;-

those for whom risk reduction and delivery to expectation was the main driver
those for whom the key focus was on managing for high returns
those for whom the focus was on cost reduction believing the risk/return arguments second order

In a vote taken at the end of the debate there was a narrow victory by 4:3:3 for those who considered growth their most important consideration.

There was a consensus that while you might please two out of three camps, the chance of getting all three to agree was slim indeed (see Huis Clos or NO EXIT – Sartre‘s play that defined hell as being stuck in the room with three people who don’t agree).

Three into two won’t go – but I can say this was the hardest but most rewarding meeting I have yet chaired, all thirteen of the participants having clear positions , articulated forcibly and with great passion.

One of the most insightful comments after the formal debate. I was told that these lunches were the one place where people felt they could say what they like without fear of recrimination. I will be careful not to incriminate- much! If you are not mentioned, it is because I do not feel I have your permission to share views, if you are defamed- speak to my lawyer (Katharine!).

Perhaps the most radical view for the second month running came from David Hargreaves, who , speaking as teacher turned actuary, lectured us on the need to pay down debt,skim off free cash from our bank accounts and invest on a carousel basis into random equities , the dividends of which would provide us with retirement income.

David’s point was clear, he wanted to avoid the funds industry and he was not alone. With the vigour of a hungry polar bear, Con Keating eyed the funds and insurance industry. One sensed that given half a chance, he and Brighton Rock would happily swallow them up.

“DC is so inefficient, you’ll get raped by the fund managers and get less than you put in”

…was his opening gambit! Broadly speaking, David and Con lead the tribe after low cost honest arrangements that people could understand. Con’s view differed only from David’s was that he saw in European models, the Swedish and to a lesser extent the Dutch systems, the Norwegian State Fund – managed as a Diversified Growth Fund at 0.08%pa and the home grown variants of NEST and NOW, examples of collective funds he would use.

The second camp, which could be termed the benchmark brigade, reckoned the key objective of a DC fund was to meet the key objective of the DC fund, typically an outcome which could be predicted because the fund was managed to a set benchmark. The benchmark brigade was headed by Jeremy Spencer. If the group reformed as Dad’s Army, Jeremy would be Walker, always a man with a fund that fell off the back of Corporal Jones‘ van. Hang the cost, Jeremy was keen to define the ambition and he won considerable support for his advocacy of diversified sources of income.

Thirdly, there was a substantial group in the room who considered managing for growth , the key. The concept was introduced by Maria who explained that being married to an elderly banker (her pension), she felt that any spare cash could be managed without due regard for liabilities, there being no liabilities uncovered. While I suspect that Maria had her tongue in her cheek, most of the men in the room had their tongues hanging out. If ever there was an insensitive for us to provide comfort in our old age, Maria supplied it.

Two of our party did not vote. Mark Benfold spoke brilliantly about the dangers of over-concentration on a single strategy explaining that a mega default would be easy-meat for predatory hedge fund managers. I had not considered the capacity of DC distorting the market and becoming a prey in this way. Mark is anti-default and speaks as a former investment manager of one of our largest pension funds, his view cannot be discounted. Clive Worlock also abstained , as a SIPP manager independent choice is in his DNA , again his abstention is understandable. That two of our thirteen could not visualise an ideal default, broadly mirrors society as a whole, there are a small number of people who have the conviction that defaults are not the answer.

We met in the Counting House’s new “partner’s room” which we will use in future in preference to the Gallery Room we have used for three years. It is adjacent to our former haunt.

Thanks to all who came. The lunch broadened my understanding of other’s views and left me stimulated and nourished for my afternoon meetings. The next lunch is on Monday April 1st and will undoubtedly have a foolish theme!

AT LUNCH