Talking of infrastructure, why did you sign up to the Pensions Infrastructure Platform (PIP)?
I am keen we should collaborate with likeminded investors whether commercial ones or asset owners and the PIP seemed like a great way of doing that. The Australian industry created IFM [an infrastructure manager formed from a collaboration of Australian pension funds] which has grown into quite a substantial infrastructure manager. I would like us to do that in the UK and PIP is one part of our portfolio where we have been able to get collaboration going.
Are you concerned about the PIP’s limited progress so far?
The important first step is to establish the PIP as a fully-fledged governance structure that works and as an authorised manager, but we are not looking to run before we can walk. UK infrastructure is not an uncrowded space at the moment and we think there will be better opportunities in yield terms at some point in the future. If we want to build a better economic model
for funds then we have to be in the game to make it happen. I think we can change the market – PIP’s fee base is much lower than what managers would charge if it was left to them alone.
Are there any other changes you have made to the investment process as a result of the review?
One thing we feel very strongly about is there are a number of embedded but systematic ways of beating benchmarks such as value tilts, low volatility portfolios, tilts towards income and momentum. We are finding cheaper ways of implementing those factors and overall we have moved towards a factor-based approach to investing and being very rigorous about what risk looks like and what the expected return is. We are implementing through passive solutions such as style indices where possible. For some of the factors it is straightforward for others it is less so and we do partner with active managers where they can add something. Elsewhere in the portfolio we will increasingly have internally-sourced portfolios that are buy-and-maintain, designed to express a particular theme, for instance our strong principles around sustainable ownership. We are still working on exactly how we do that but we intend to build a portfolio which expresses our views on that.
Will you ever manage third party money?
It is not an active consideration but we do pensions administration for other schemes. Because the Railways Pension Scheme is a multi-employer scheme we have a lot of the infrastructure needed to run other people’s money, however my focus for the next one, two, three years is to get the portfolio running as best I can to generate the best longterm returns for the rail trustee. If I reach a
point I am happy we are doing that then it may be that other people say ‘can you do it for us?’ At that point I would not rule it out. As I said earlier, collaboration between schemes is to everyone’s benefit.
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