Mark Walker – Coal Pensions
When I was up at the PLSA event, I sat down next to an unassuming chap as we waited to go into the plenary.
Hello Henry – he said.
I looked down his lanyard for a peak of who it was. It was Mark Walker, former CIO at Unilever, head of investments at Mercer and now CIO of the Coal Pension Fund.
Embarrassed, I replied “hello Mark” – hoping he hadn’t noticed I had forgotten our previous meetings. He hadn’t but he was too polite to mention my indiscretion.
We spoke about his current job, investing the Coal scheme. I assumed it was all in bonds but I was wrong. Because the scheme is guaranteed by the taxpayer, it is invested in equities – all in equities. It has done rather well, pays proper bonuses to coal workers and is deliciously in surplus,
No doubt some readers will be incensed that tax payer money is at risk on the equity markets but I’m not one of them.
The heresy of taking “unwanted risk” is deeply ingrained in the collective psyche of institutional investors. Don’t do it, don’t invest in equities when you don’t need to, hide your talents under a rock and give your master his money back when he returns (biblical parable on risk/reward).
This pm, while travelling to London from the north of Dorset, I read this in a Katie Martin FT article. It’s a review of an American paper with the headline
and this is Katie’s key takeaway
.. the really odd bit concerns the chance of so-called ruin, or running out of funds in retirement. A portfolio that bulks up in bonds as we get older comes with a 17 per cent chance of ruin. For domestic equities, the risk is about the same. But a half-and-half strategy of domestic and international stocks produces an 8 per cent chance of ruin.
In other words, you’re better off in your investment lifecycle avoiding bonds altogether.
Here’s the abstract of the paper.
We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.
These findings are based on a lifecycle model that features dynamic processes for labor earnings, Social Security benefits, and mortality and captures the salient time-series and cross-sectional properties of long-horizon asset class returns. Given the sheer magnitude of US retirement savings, we estimate that Americans could realize trillions of dollars in welfare gains by adopting the all-equity strategy.
At a time when Britain is struggling to maintain its standard of living, it may be time to listen to some new voices and not plough the same unproductive furrow.
Maybe that chance meeting with Mark Walker was my most important, in Edinburgh last week. 40 years on from the miner’strike, the coalworker’s pension scheme is still productive.