Focus on Member Nominated Representation in the LGPS

This is the article I posted on the Pension Social Media site Mallowstreet for a feature they did on trustees. I have been short listed for the annual Mallowstreet Awards for 2013 as "Most Influential Trustee" (2nd year running) and "Top Blogger". 

"I've been a member nominated representative on the Tower Hamlets Local Government Pension Scheme since 1996 (there are no Trustees in the LGPS). I was nominated by my trade union UNISON and have been there ever since. In fact all the original Councillors, Council officers, professional advisers and fund managers have all left apart from me. I am also the admitted body representative.  

There are 101 different LGPS. Collectively they are worth around £130 billion. It is an open defined benefit scheme.  The Tower Hamlets scheme is worth (June) £930 million and has 16,000 members (5,200 active).  There is an investment panel which reports to a Council committee.

The main challenge as a "trustee" is keeping up-to-date with the scheme paperwork and keeping your pension knowledge current. The best part of the role (not really a highlight) is holding your fund managers and advisers to account. Especially with regard to good Governance and other ESG issues. It is surprising how poorly prepared some managers are when they come to present to panel. Even in Beauty Parades you find prospective managers come to see us and they haven't even read our Statement of Investment Principles.

The LGPS is changing dramatically next year with a new set of benefits. Also there are going to be local pensions boards set up in partnership with the trade unions and the employer representatives (elected Councillors). There will be for the first time 50/50 representation on these boards.

I think all member nominated trustees or representatives need more support and independent training. UNISON is planning to offer training and advice to its representatives. The TUC Trustee Network and the Association of Member Nominated Trustees (AMNT) have been really supportive (as of course can be social media sites such as Mallowstreet!).

It can be very difficult as a lay trustee to feel confident enough to challenge your advisers and managers. You need the input of your peers".

How to pitch to the Local Government Pension scheme

Last week I was in "Citywire" magazine (see website here) on how pension fund managers and other financial service providers should "pitch" for business to Local Government Pension Scheme (LGPS) committee members. The interview had been arranged by the Association of Member Nominated Trustees (AMNT).  I'm a member of their Executive Committee.

I have endured a number of pension "pitches" and so called "beauty parades" over the years. Some are very good but often they are pretty awful. There are some fund managers who may be good at their jobs but should not be allowed to appear in front of well rounded human beings. They forget that their role is not to dazzle us with their brilliance but to persuade us to buy their services.

I have a general rule in life. If I don't understand something I won't buy it. You can also guess what I will do if I don't like the person trying to sell it. I also want to buy a decent house view on investment principles and not a "star performer" not matter how brightly he or she is burning at the time.

The lack of preparation and research is also striking. If they don't even bother to read and understand our scheme Statement of Investment Principles (SIP) before the pitch then I really wonder why they have turned up and wasted their time and mine? 

When you explain that Pension funds should be long term investors who believe that investments in well managed companies who have good governance practises will tend to produce superior returns you can can see the horror, the horror of the ill prepared and the complacent. Sometimes even the wannabee Masters of the Universe truly have no clothes.  

Hedge fund trimmer

SIP IT

A few weeks ago I went to a “pitch” for pension business by the Hedge fund arm of a large international finance company. It was a confident and well delivered presentation. The “only” problem was that the fund managers failed to even consider Pension fund “Statement of Investment Principles” (SIP). 

By law each pension fund has to have a SIP. Many SIP's requires fund managers to put their money only in “socially responsible investments”. This is not just “tree hugging” but based on an important principle that investments in companies that do not for example exploit child labour, damage the environment treat their workers badly or bribe and corrupt local officials will produce superior investment returns. Fund managers also have to engage with companies and vote their shares. They need to have an audit trail that can prove what they are doing. 

Your typical hedge fund does none of this. No disclosure, no transparency and little regulation. Even if they had the will (which I doubt) to act in a socially responsible manner they could not even begin to explain how they could confirm with a decent SIP. Never mind how they could claim that they confirm with UN PRI (which is even more prescriptive than many SIP’s).

So, employer and employee trustees and all other representatives on pension’s scheme check your SIP and see how it deals with Socially Responsible investment. If it is no good then try and change it. If it is any good then ask all your fund managers (and prospective ones) how they apply it. It they can’t or won’t engage then sack ‘em.

(PC as always)