- published on 20/05/2013
A limited range of asset classes held for the long term with little change in managers has generated 10-year average returns of between ... [more]
Geoff Mellor, chief executive of the £20-billion UK fund Coal Pension Trustees (CPT), used his opening words to ask why the audience of Australian superannuation bosses were still in the room.
“Do you feel that travelling half-way around the world, sitting in a conference venue and listening to serial speakers is a better use of your time than actually getting out and about into the UK market?” he asked delegates of Global Dialogue 2012. The conference was organised by the Australian Institute of Superannuation Trustees, the peak national body for industry superannuation and held at the Hyatt Regency London from May 21 to 25.
Fund executives and trustees shifted in their seats and murmured. No one answered aloud. Mellor, the first speaker in a day-three panel session about collaboration between pension funds worldwide, clicked to his first PowerPoint slide. The conference resumed.
Mellor joined the CPT, which oversees the £11-billion Mineworkers’ Pension Scheme and £9-billion British Coal Superannuation Scheme, in 2007 from managing the pension scheme at hospitality behemoth Whitbread. Coal Pension Trustees’ government- guaranteed benefits and exemption from certain UK pension regulations make it different from other pension funds, Mellor said.
It wanted to act according to its specific risk tolerances and return objectives. This strengthened its resolve to not tolerate the standard way of managing a UK pension fund through “generic solutions” from consultants and “poor-quality trustees and management”.
“So the challenge for us was not to follow the herd,” Mellor, a trained actuary, said. “We had to work it out for ourselves.”
Coal Pension Trustees found good and bad practices when it interviewed funds in Europe and the US about their investment governance principles and ways of management.
Flaws included the trap of funds spending 80 per cent of company time on matters equalling roughly 20 per cent of importance. Spending more time on fund-manager selection than asset allocation is a common instance of the so-called 80/20 rule. Unaligned interests between funds and their service providers and an inability to clearly articulate fund objectives were other common flaws.
Mellor highlighted three funds – the 400-billion-Danish-kroner ATP, the District of Columbia Retirement Board and £15-billion medical endowment Wellcome Trust – as practicing admirable governance.
|“They’re absolutely paranoid about risk,” Mellor said. “Everything is driven from their risk agenda.”|
At ATP, fund objectives permeated senior management and their employees. “What we found in those organisations was alignment from the top to the bottom. The chairman of the advisory board and the most junior person in the organisation can articulate what they’re trying to achieve.” Investment risk also dictated many policies of the Hillerod, Denmark- based fund. “They’re absolutely paranoid about risk,” Mellor said. “Everything is driven from their risk agenda.”