By Donny Hay
If ever the cliche “pride before the fall” deserved its over-worked status, it was in the 2008 global credit crisis. Over-confidence gave way to calamity on a scale not seen since the Great Depression nearly 80 years earlier.
Few were spared the impact of the worldwide recession and it’s only relatively recently that the UK economy has returned to growth. Even with encouraging economic indicators, pension funds continue to be dogged by a less-than-encouraging low-yield environment.
Our previous musings for the Friday View have covered the lack of a “Holy Grail” investment solution and how procrastination can only make matters worse. From a pension scheme investment perspective, we now want to address how trustees ought to be questioning established ways of thinking.
In so doing, they would be more receptive to accessing the technical investment expertise they may lack themselves – especially if they are considering non-traditional investments.
Interrogating ‘fail-safe’ or accepted practices from a different angle can present solutions to today’s market challenges. In addition, trustees should not be reluctant to call upon the accumulated knowledge readily at their disposal: be it that of consultant or fiduciary manager. This is particularly the case when considering new asset allocations and more complex investment strategies that take advantage of market opportunities.
By seeking scheme-specific advice, trustees can avoid the “group-think” mentality that results in pension funds herding into ‘flavour-of-the-month’ asset classes or, alternatively, procrastinating and delaying decision-making because they’re not sure of what to do. This can mean tactical allocations and opportunities go begging.
In these instances, advisers can nudge trustees away from group-think, ease the decision-making process and offer objectivity and expertise which may well be valuable.
Despite a more optimistic outlook, challenges remain in the near-term and further out. Trustees will know as well as any investment professional that they need to appraise a full range of options to keep their fund on the right course.
Not only do they need to strike the right balance in the consideration of investments and what they bring in terms of cost, liquidity, risk and return but also need to think carefully about their approach on searching out the best strategic way forward.
In our view, trustee boards and advisors who pool their insight and resources by working in collaborative partnership with an investment consultant or a fiduciary manager are better able to navigate pragmatically the obstacles which still lie ahead.
This approach brings with it the checks and balances in personality and experience which can act as a safeguard against complacency re-asserting itself.
Donny Hay is head of clients UK at MN
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