A different perspective? The FTSE is on sale…… pic.twitter.com/KcdNv0vTG4

— Holly Mackay (@HollyAMackay) March 9, 2020

I am sure Holly’s graphic shouldn’t be taken as financial advice , though some will try to catch a falling knife.

We have no way knowing if the bottom of this stock market slump will see the FTS fall below 6000, 5000 or 4000. Those brave enough to invest in stocks and shares ISAs or top up their pensions using default funds before April 6th will hope that they are treated to a decent price for their money, but we swim in shark-infested waters.

At times like this we are called on to be resilient. If you’ve been through of these sharp falls (the first I can remember was in October 1987, you should be resilient. You will know that the market will come back and the only mistake you can make is to miss the rebound.

What’s different this time?

Well this time there is a huge lot more money in the market belonging to “Sid”, the amateur investor. This is not just because of the move to DC, the impact of auto-enrolment but also because around £70bn has been voluntarily transferred from defined benefits pension schemes into personal pensions. And the money is now in the market and is , on a “mark to market” basis, down a fair way.

FTSE 100

What’s different is not the speed or the scale of the fall in the stock market, but that most of the people whose pensions are now dependent on these markets, have never been here before.

It is now that we will test the abstract notions of “financial capability”, “vulnerability” and “capacity for loss”. I believe that under MIFID II, those responsible for managing other people’s money, have a responsibility for reporting losses of 20% or more.

How do you tell a steelworker that his pension has just been cut by 20%, that he’s looking at a 20% pay-cut for the rest of his life?

Of course you don’t. Because if you are managing people’s money, you think about staying in the market , of rebounds and of buying opportunities (hat-tip to Holly).

We don’t know what it’s like..

I’m about to go up to Edinburgh and meet money managers at the PLSA’s investment conference. We will be discussing risk and reward in abstract ways but we won’t be discussing the impact of the impact of these events on the people who de-risked defined benefit pensions and took the risk of the market impact of an energy war and a pandemic onto their personal balance sheets.

When we discuss “mark to market”, we wont’ be doing so in terms of household economics. Instead we’ll be looking at triggers, of market opportunities. Those who have seen their schemes decimated by the take up of CETVs may be thanking their actuaries that not only did that gilts +  investment strategy make the scheme super-resilient, but it rid it of a good chunk of unwanted liabilities.

Some of those unwanted liabilities are now nursing six figure losses, many transfer value may be – on a “mark to market” basis, down more than £100,000 since this time last month.

What are we doing about our new customers?

As an advocate of CDC, I have been lectured about the need for “responsible messaging”. Can I now ask those who lectured me, what responsible messaging they are giving to the people who are reliant on the markets to pay their pensions?

Holly’s approach may not be regulatorily  correct, but at least it speaks the language of the new “investor”.

Last week, I sat in the offices of the wealth management unit of one of Europe’s largest insurance. The head of department was telling me that he oversaw funds that were making a great deal of money out of the “coronavirus opportunity”. I am sure he is right and that there will be winners.

But those winners will need counter-parties and I don’t expect that those cashing out of the market right now will be smart investors recognising “the first cut is the deepest”. I suspect that many funds will be liquidating assets to meet redemptions from people who don’t want to play the game any more, whatever the cost of quitting at half-time may be.

This may be an extreme case, but it highlights a fear many ordinary people have, that the markets are rigged against them. The trouble is that they are now in those markets and no longer protected by collective pensions.

Resilience – a key concept in investment.

Investment is not about taking risk off the table, it’s about keeping risk on the table. Investors are keen to keep capital in the market so that companies can be productive and the wealth of nations grow. Pensioners need risk to stay on the table because they live a long time.

Pension schemes have chosen to de-risk and their exposure to risk (including ironically the paying of pensions, is massively reduced since the last time I went to a PLSA investment conference (2004)

But in its title, the PLSA now says it is representing not just pensions, but lifetime savings too. Put in steel-men’s language, that means it should be representing not just the BSPS pensioners, but those who opted-out and took their money.

The vast majority of risk is now in retail not institutional funds. These funds are managed by wealth managers not investment consultants. Liabilities are discussed by financial planners, not actuaries.

Resilience is the key at times like this. Now is the time we stress-test. I wonder how many of those 150,000 former members of DB schemes who are now being asked for resilience, will be represented at the PLSA investment conference.