I am with Jo Cumbo that without governance , scrutiny and perseverance large schemes can underperform. When I first came into pensions I was confined to using the mighty Allied Dunbar Managed Fund. I was given the same sale that big is best and it turned out a nonsense.
That fund overgrew its capacity to call itself “managed”.
This is always the challenge for large funds, without proper governance big will not be better.
There are of course some funds that have done great things while small. My friend Tim Lewis runs the Lewis Investment Master Trust that has delivered high ranking returns while having only £120m under management. A nimble small fund can achieve great things but one day it will become a large fund as Allied Dunbar’s managed pension fund did.
We know that institutional funds play by different rules. Speak to large pools with LGPS such as Border to Coast and they will talk about playing a long game with valuations of assets often telling misleading stories about the state of underlying assets.
My recent blog, praising Nest for taking on private markets, British private markets at that, will annoy many. But I can see no way for this country if we do not make the organisations that pay money into our megafunds, successful in their own right. That means a degree of circularity with money that comes from them , returned to them through investment in their shares. That means listed and unlisted companies with shares traded on the stock exchange or part of private equity portfolios.
One of Jo’s colleagues, the interim pensions reporter Alan Livsey runs an article this morning that looks at the Canadian Maple Funds , Funds that our Chancellor urged pension trustees to look at when planning ahead.
The Canada Pension Plan Investment Board — the seventh largest pension fund globally — points out the country now has the third largest share of pension wealth of any nation in the world. “We’re one of the few countries on the planet that has a solvent pension plan,” it says. By 2021, Canada had eight of the world’s 100 biggest pension funds.
But follows up
But the Maple model has come under strain. CPPIB’s latest annual report published last week delivered another set of mediocre investment results in the year to March with the value of its fund, net of fees, rising 7.8 per cent but trailing its benchmark portfolio for the third consecutive year, this time by 5.4 percentage points. That was the longest stretch of underperformance for CPPIB since 2007.
I have written on this blog of the underperformance to similar benchmarks of Britain’s largest private pension fund- USS.
There is no “right” for large funds to win, any more than there is right for certain football teams to win – although we suspect they’ll come back at some time.
Necessarily PPI will be right to point to large schemes and point out that big funds, like big teams, can let large numbers down. Many of us will support small teams knowing they will not win against big players very often, Jo may be among them!
But the harsh reality is that there are a handful of teams in the UK which will win in football and in pensions. It’s the same in Canada. The story is when they let us down. Sometimes a fund has so little leadership (they call it governance these days) that they never recover. I still have clients who I sold Allied Dunbar 226 plans in the early 1980s who contact me about their funds.
But we will not go that way with the megafunds we’re building now because of VFM, because of journalists like Cumbo and Livsy and most of all because we have governance from Government through to consultants whose eye is on the ball.
