Today`is my birthday and as an early birthday present, someone dropped into my Linked in message box ,this

This is not a blog about Hymans Robertson , it s a blog about a certain mindset which is rare in the UK and even rarer in our pension system. It is a mindset possessed by John Hamilton who if both a senior executive of Stagecoach and Chair of its Trustees. It is also a blog about Derek Scott, who John acknowledges both as his predecessor and his mentor. Hamilton quotes the UK Foundation’s report on why Britain has stagnated over the past 20 years

Hamilton’s ideas were shaped by the academic John Wood who helped establish the investment principles behind the Stagecoach scheme 20 years ago. He  quotes approvingly recent work from John Kay on the failure of British pensions to continue the momentum it established prior to its adoption of a lockdown strategy on growth. But mostly this podcast is pure good sense from someone familiar with both the academic basis behind “productive finance” and what adopting it in pensions, means in practice.

It is a great birthday present and if you want to share the joy it gave me early this morning, then listen (from about minute 4 when Hamilton gets gong).

The story he tells begins in 2002 when the pension fell from being worth £300m to £200m because of over concentration in one stock – Vodaphone. The Trustees thereafter decided not to rely on consultants for their strategy, shocked as they were to be told that Stagecoach had done less badly than their peers and should pay the consultant a performance fee.

For most of the next 20 years , Stagecoach fought a running battle with TPR to maintain a growth strategy investing 90% in productive finance, a good proportion of it in the UK economy. Eventually the Trustees adopted LDI to no great advantage. Hamilton has yet to be convinced by any argument that leveraged LDI is anything other than creation of risk.

The investment philosophy was and is simple. Buy on yield (4%) and make sure the companies you invest in have a business plan that can pay that yield over time (anyone familiar with Terry Smith, will be clear about this strategy).

Hamilton describes the search for  Productive Finance as finding the British Google, reminding us of MySpace and Friends United, less successful versions of Facebook. To do this , Trustees need to have the resource to know what to buy and the guts to hold on to it.

Hamilton boasts of having a Trustee Board which is independent of  recent received ideas. He cites as one, the dominance of Professional Trustees who he describes as acolytes of the Pensions Regulator. He attributes his Board’s boldness to continue to invest in our enterprise culture as a continuation of Stagecoach’s enterprise culture. For Hamilton the sponsor is not an enemy but a friend, he manages the seeming conflict of being on both sides of the argument by pointing out there should be no argument.

Stagecoach, despite the LDI “episode” are fully funded on a buy-out basis, at a gilts +50bps basis they have a surplus.They could buy-out , they could run on. Hamilton points out that in terms of the Trustee’s substantial gilts holdings ( a legacy of LDI) buy-out would mean re-risking into corporate bonds. Because there is insufficient availability of  high yielding good quality bonds in the UK, this would mean selling gilts and buying overseas bonds. This does not sound to Hamilton as what a Labour Government wants to happen.

It would also mean Stagecoach having to sell its illiquid holdings in private equity, probably at a discount and most importantly , abandoning its investment principles of looking for sustainable real yields of 4%.

There is an interesting discussion at the end of the podcast over what happens when a scheme such as Stagecoach decides to run on. Stagecoach clearly understand what it would do with the surplus it would generate and are prepared for the downside that from time to time that surplus might turn to deficit. But Elaine Torry bemoans the reality that most Trustees do not have such clarity of thought giving consultants little direction on how to set investment strategy.  This is precisely why all trustees, including professional trustees should listen to this podcast (and relisten to it too).

I am spending the day on a steam-hauled train navigating the county of Kent. I will be making my pilgrimage to Canterbury where I hope to have a lunch of bread and cheese and maybe some nice red wine with my lovely partner. I hope that I can convince her to listen with me to John Hamilton’s podcast one bud each!

Thank you to the person who sent me this link, you have made me very happy. I share with John Hamilton , a view that pensions are far too big to be ignored as part of the way we run this country. Today I am off, but tomorrow I am back on and determined to help make John Hamilton’s vision for pensions happen!

Off to Canterbury with my partner of 25 years on a steam train on my birthday pic.twitter.com/gCjlDpdpgT

— Henry Tapper (@henryhtapper) November 11, 2024

If you know your Chaucer , you’ll know the fellow in the picture!

I think John Hamilton delivers the narrative these days!