Sunday, May 26, 2013

How to allocate a £1 billion of pension assets?

Picture is from an unusual meeting held recently with other members of Newham Pension Committee on fund "asset allocation".

What types of investments you should allocate pension fund money into is arguably the most important decision that a board or trustees can make. Far more important than deciding who you employ to manage the funds day to day or even how much they charge.

Depending on your fund requirements, if you say decide to invest too much money in high risk equities rather than lower risk bonds it could have a devastating impact. Conversely if your fund really needs to take more risk and you think the economic outlook is right, then it can have a very negative effect if you opt for the safe options.

Newham decided that instead of having the usual type of review meeting meeting, where our fund advisers will  present  issues and options to the Committee who will then be expected to make a decision - to try something different. So the fund officers organised a special "round table" meeting and invited different City professionals and the Committee members (including the trade union reps) to debate and argue what should be our asset allocation fundamentals.

There was  a robust but productive wide exchange of views and I think all committee members went away with a much better understanding of the problems and possible solutions than a dry presentation. Good stuff. I recommend other pension schemes should consider doing the same. (picture of me with Cllr Ayesha Chowdhury and UNISON pension rep Gloria Hanson)


Anonymous said...

Sounds good but what was actually decided? Hob nobs instead of Jaffa biscuits at the next round table?
To agree to have another open debate or something that will actually beat future rpi and make money? or the tried and tested way of what is every other pension fund doing and let's do the same.. What is the expense ratio of running this pension scheme? What sub optimal large cya hf's has towers Watson or Mercers recommended?

John Gray said...

Hi Anon

Watch this space but I'm not sure you "get it"?

Anonymous said...

As one of the 9000 contributing members I hope I will "get it"! The London Borough of Newham Pension fund had a funding level of 72 per cent, i.e. the assets amounted to 72 per cent of the liability promises made as at that valuation date.This corresponded to a deficit of £250.1m at that time.
£2.9mln paid in management expenses. The majority of the allocation being to an indexed equity fund that can be replicated for 5bps.. Thanks for the informative reply I look forward to watching this space.. Sarcasm aside its good that there is positive engagement to a wider group. Well done.

John Gray said...

Thanks for that anon (I think). Not sure where you got the figure of 9 k active members or the majority of the fund being invested in index equity? But you are absolutely right about the need for positive engagement.

All Council pensions’ schemes need to up their game to deal with the challenges of the new LGPS 2014 and talk of merger.