You have hit £6bn of assets under management. That is a big number in a relatively short period of time as the master trust was only created in 2014. What is behind this dramatic rise?
There have been a few things. The consolidation piece has been huge. We are one of the biggest consolidators in the market. That has driven a lot of our assets.
Our investment performance has been pretty good, as well, in the past three to five years. We have been top quartile. Because the base of our business is auto-enrolment and SMEs, and we are now moving to clients with bigger mandates, we have such sticky business. The contributions keep rolling in and compounding. So there are a few different things.
You mentioned that you have been consolidating other master trusts into your organisation. What is the strategy there?
It is mainly to keep growing. We want to be one of the big players in the market, to be one of the final master trusts’ standing. So it is reaching that critical mass.
We are able to do that because we have built the technology from scratch in less than 10 years. Being purpose-built for pensions makes it easy to plug master trusts into our master trust.
Are you taking over any other master trusts?
We are. There is nothing we can announce right now, but we are working on a few deals. We have become the consolidator of choice in the industry.
You mentioned your successful investment performance. What is your investment philosophy?
There are three pillars to our philosophy. First, we aim for pretty punchy growth. We believe in going punchy on the growth side of things, but tempering it a little.
Second, we believe in active management, but in the right places. This typically means bonds, private markets and the more impactful investments. Around a quarter of our default is actively managed, a high proportion compared to other master trusts.
Finally, sustainability is core to what we do. It is not a tick box. It runs through everything [we do] and is non-negotiable. We don’t just have an allocation in something impactful. All investments need to be here in 30 to 40 years’ time.
Performance has been pretty good on the back of that. We are 80% equities, with the rest in private markets and active bonds. We are never going to compete with the pure equity strategies out there, particularly over short periods.
Are your equities global or UK?
When I joined over three years ago we were pretty much overweight the UK. That has changed. We are now broadly market-weight UK. Based on that, we don’t see the structural reasons to be overweight. That might change, but we are now pretty much global.
Are any of your three pillars more important than the others?
They are all pretty important. The tempered growth is probably the biggest thing that is going to make a difference to our members and our outcomes.
And owing through all that is the commitment to ESG.
We have a team of responsible investment people and we are seeing the merging of what they do with the core investment side of things. It is no longer a separate team.
You set a 2040 net-zero target. Does that come on the back of that philosophy?
You cannot compromise on returns. Our 2040 net-zero target is one of the earliest in the market. The reason is we are seeing data which shows that 2050 is too late to meet the 1.5-degree commitment.
We want to go quite big and punchy on this. Everything we are doing is aimed at that. We have just built a bespoke index for our passive equities, which has a net zero by 2040 target. Everything we are doing has that lens.
We have just received our latest carbon footprint [data] and have achieved a two-thirds reduction since 2019. So we are well on our way to hitting carbon neutrality in 16 years.
How do you deal with companies not up to scratch on ESG? Does it mean more engagement or perhaps divestment?
We have evolved. Originally, we were hard on the stewardship and engagement side of things. We worked with the industry on a lot of those areas but found it just didn’t resonate, particularly with a few big players. Some of the big financial companies, the big oil and gas companies and the energy companies haven’t done enough in this space.
So we have started taking steps towards divesting. We are not going to pretend that our £6bn master trust is going to move the dial, but it might start conversations and get some attention.
Also, we don’t want to be invested in companies who are not listening. So we have moved to a stricter stance on those companies.
You signed the Mansion House Compact. There is a lot of debate about it, so why did you sign up?
Firstly, being a British fintech [the trust parent company], which has benefitted from venture capital and private equity investment, it is something we want to continue to support using our own pension money.
We want to grow businesses, particularly in the UK, like we have over the past 10 years. We already have private credit, we are close to doing private infrastructure and are working on that private equity theses, which is in line with Mansion House.
It is the right thing to do. If you follow the Australian and Canadian models, private markets have supplied some strong returns over the 10 to 15 years since the financial crisis.
Can you understand some of the scepticism within the pension fund industry towards what the Compact is trying to do?
I do. The fact that it wasn’t UK only, even though it was supposed to be UK, helped to get more [investors] on board.
I see some scepticism on private markets in general, particularly over the past two to three years. Some private markets, like private equity, have not delivered what they probably should have done. So it has been a bit tricky, but long term it is the right thing for us.
The government has made numerous statements about the role of pensions. What have you liked and disliked?
It seems that they have started to listen to the industry, although this began with the Conservatives. The collaboration between the Financial Conduct Authority and The Pensions Regulator on Value for Money (VFM) is the right thing to do. We have been pushing for transparency around costs for some time and these are the things they are looking at.
For VFM, Mansion House is definitely a positive. Great British Energy and the National Wealth Fund will have good indirect benefits for UK pension schemes. Obviously, mandation, which hasn’t been officially announced, is not helpful and is not going to work.
Master trusts carry a lot of weight when looking at the future of the UK pensions industry. Do you feel that pressure?
I’m relaxed. It is a real opportunity to put money to work. There is some pressure as we need to break down some barriers and issues in the market to fulfill our potential as asset owners. I’m not sure we are going quick enough.
What was the driving force behind you joining the Diversity Project?
Diversity has always been important for us as a newish fintech with a lot of young people. We joined the Diversity Project to cement that. But we also joined to learn from others from within the industry: to see what the best thinking is out there, the best practice on how we hire, invest, work with managers and to be part of the conversation across the industry.
I wrote a piece on diversity exploring if it had fallen off the agenda. There were two responses. The first was that it had become politicised, while the other was that organisations are focusing on it so don’t need to talk about it. Which view do you share?
It is slightly more of the latter. People and organisations are getting on with it. Also when it becomes politicised, it brings the worst out in the discussion and you don’t get to the source of the issue.
The fact that it has become business as usual has taken it o the agenda, which has helped because you don’t get that vitriolic discussion.
It seems the more political stuff like programmes on white privilege, gender identity and decolonisation are not contributing to better investments. What is your view?
Agreed. It definitely takes the focus off what we should be doing. We all need to be working together on this.
At the same time, it can be good to have these discussions, as it can be when we learn the most, when the discussions are on the edge. That is, as long as they are peaceful and respectful.
You have launched a Halal pension. Why was that developed?
We effectively recognised the gap in the industry to provide a sharia-compliant fund. It is making sure we support all communities across the UK as we have 1.5 million members.
So are you looking at introducing similar funds?
Yes. We have launched our Lifestyle strategy and a number of sub-funds, all of which help members to build their own portfolios. This has gone down well.
What have been the biggest challenges during your three-and-a-half years in this role?
Sometimes in this industry you feel as if you are pushing treacle up a hill. The development of investments can be a bit slow.
We are breaking down barriers slowly in this market, but things like performance fees, especially on private equity, is still an area of discomfort.
What has been the biggest change you have made to the assets?
The biggest change is we didn’t have any impact investments when I first joined, so that has been the biggest shift. We built an impact strategy, which added 13% of active impact strategies within our default: that is in biodiversity and green bonds, in particular.
We also launched our 2040 net-zero goal and effectively switched all of our equity investments into a custom index. So we built a custom index which is 2040 net- zero aligned for between £3bn and £4bn worth of investments.
You joined from Mercer. Why did you make the move?
I was at Mercer for nine years. It was a fantastic place to work. You learn a lot at a big firm like Mercer, but I was looking for a different challenge. Moving from a large consulting firm to a small fintech was something I could get stuck into. I was able to take hold of the investment proposition at Smart and lead with a blank sheet of paper.
Was it a nervy experience making that move?
When I was Mercer I was running the investment strategy in master trusts, so a similar type of role. But I saw the role as a great growth opportunity.
What do you see as the biggest challenge at Smart Pension?
To continue establishing the brand. We have been seen as the disruptor and built on the back of that. We are competing and come up against some big names in the market. So it is a case of continuing to prove that we deserve to be in the conversation.
What has been the biggest lesson you have learnt in your career?
I started in the industry about 12 years ago and it is realising, at least in the early years, the importance of bringing a fresh perspective. Therefore you always have something to say, no matter who the audience is, and you should not stay quiet.
JAMES LAWRENCE’S CV
March 2024 – present
Director of investment proposition
Smart Pension
July 2021 – March 2024
Head of investment proposition
Smart Pension
July 2017 – July 2021
Lead investment strategist (Mercer Workplace Savings, and Mercer Master Trust)
Mercer
January 2014 – July 2017
Investment consultant (Defined contribution pension schemes)
Mercer
September 2012 – January 2014
Graduate analyst
Mercer
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