As an investment manager, when meeting pension trustees, my working assumption had always been that markets and investment outlooks would always be top of their agenda, the subject of much discussion and debate around the table. And that for the trustees to spend hours listening to views on the Federal Reserve, Emerging Market Debt or the Straits of Hormuz would be the highlight of their day.
Not necessarily so…….it seems.
Pension funds and trustees have a lot more going on apparently.
I’ve been looking at three recent reports which look to highlight what the key issues are for pension trustees today and what’s commanding their attention. The reports are from Aon, TPT and WTW.
Well the good news (for me anyway) is that investment markets still matter to trustees. Aon point to the importance of the three i’s – investment returns, interest rates and inflation. In their survey, 82% of respondents see these as among the top three risks they face. In fairness, all the reports point to trustee concerns around market and geo-political risk currently. It would be strange if they didn’t. 45% of Aon pension clients expect a negative impact on their funding position over the next 1-2 years because of economic uncertainty. And for funds that are well funded this strongly supports the case for putting risk management controls and governance in place now, instead of later.
So what else is on the agenda for trustees today?
Just keeping up is a challenge. This is reflected in all the reports. Keeping pace with regulation and governance is a priority for trustees regardless of jurisdiction or nature of the fund, and an agenda item that’s unlikely to go away.
Another current priority feature for trustees is the drive to access new assets. This is common to both DC and DB funds seeking non-traditional exposures . This usually boils down to some form of illiquid alternatives such as private assets. All reports recognize the illiquidity aspect as something which needs consideration and management. But it was interesting that in the WTW research the biggest challenge trustees see in investing in Private Markets is not liquidity but costs. 81% see costs as the biggest concern – something that providers would do well to note.
Also high on the agenda today (and has been for some time) across the board is the issue of member engagement and education. Low engagement still persists and as the Aon survey highlights nearly 90% of trustees have already reviewed or plan to review and improve communication strategy
However the trustees agenda can be very different depending on whether it’s a DB or DC scheme.
One of the big challenges and discussion points for trustees of DB schemes is the question of the “endgame”. Irish DB pension schemes are maturing quickly, as more members reach retirement age and new entrants are typically joining DC schemes. So do the trustees decide to run the fund in a minimal risk fashion or look for some way to “off-load” the liabilities. The Aon research suggests many will opt to continue to run the fund in a low risk fashion.
The increasing complexity of the pension fund agenda is clear. Investment returns and risk still feature prominently but today there’s a lot else going on as well.
Tradewinds 