It’s a proper question being asked by Edi Truell and it’s a proper question being asked in the FT article by Stuart Kirk.
Kirk is explicit
While equity investors ignore bad governance when it suits them, the irony is they don’t need to. Academic studies of governance and shareholder returns struggle to find a definitive positive relationship — let alone causation. Indeed, a Journal of Corporate Finance paper in 2022 showed that poor governance stocks have actually outperformed good ones since 2008.
He concludes
The reality is there are as many ways to run a company as there are companies. We should celebrate this diversity and let caveat emptor prevail.
Truell’s argument is more subtle and (to me) more persuasive. I would rather align my interests with Warren Buffett (or Edi Truell for that matter) than to trust in trustees to see me right.
From yesterday’s blogs and Claer Barrett’s article on the fiduciary groupthink that led to lifestyling (and the LDI crisis too), I’ve had a lot of comments and mails asking just what interest a DC trustee has in my outcomes
Great article.
Always be careful trusting your money with others who don’t have skin in the game.
What’s the downside for them if you lose money? Often very little.
Best to invest in a SIPP + safe tracker funds/ETFs.
If young, more stock % ETFs.
If old, more bond % ETFs.
— Max Swan (@maxswanFTG) January 28, 2024
Heresy?
Well I don’t think so. The diligent trustee who cares most about member outcomes is a rare beast. Most trustees have at best “self-preservation” as a primary driver and at worst a wish to do as little work for as much money as possible.
Self preservation comes from a slavish adherence to the various codes that come trustee’s way from TPR and attention to the minutiae of governance that keeps them not just in employment but employable in years to come.
The truly professional trustee is the one who refines self-preservation to the point where a portfolio career can be extended over numerous appointments, each carried out perfunctorily and with the minimum of empathy with member issues.
Consequently, conformity becomes a virtue, since there is wisdom in crowds and herding is a means of minimising attacks from predators.
But herding creates its own risks, 2022 exposed those risks as did 2008. In fact the submission to codes and the failure to think for yourself is a sure sign of trouble ahead. The dissenting voice, Musk, Truell or Buffet is usually a good voice to listen to.
The point of this blog is not to get 100% of trustees to say they have read the General Code or to explain how lifestyle means that when you lose money you don’t lose your power to purchase an annuity, the point of this blog is to publish tweets like these.
Hopefully blogs like this, articles like Stuart’s and comments like Edmund’s will encourage a few more trustees to align their interests to the people whose money they are managing and make sure that they are investing in assets that are managed the same way. A slavish adherence to codes does not necessarily make that happen.
Alignment
By investing in a company that is run and principally owned by Warren Buffet you align your interests with his, and his instinct is to make him and by the way – you , money.
By investing as your trustees consider best, you are accepting that they know best. But they may not know anything , other than what the General Code, the DC code, the DB code or the CDC code tells them and these codes are made by lawyers who are looking to implement legislation made by parliament. All of this should be in our best interest but by the time it gets to us , it can mean that we lose 30% of the money we had in our pot in the year before we wanted our pot back, and that is not in our interest!
In these money matters, money matters most, not codes. Following codes of guidance that lead to bad outcomes is not sensible.
As Stuart Kirk concludes , “there are as many ways to run a company as there are companies“, Musk , Truell and Buffet run companies for their own interest but those who have invested with them , have done very nicely thank you.
I am very grateful that the trustees of one of my pension funds has invested with two of the three, I’m working on further alignment!
