Pension schemes need to overhaul their governance structures so they can “lean against the wind” to take opportunities when markets are doing well, RPMI Railpen investment director Ciaran Barr has said.

Speaking at the PLSA Investment Conference in Edinburgh today, 10 March, he said: “When times are good, overhaul your governance structure to make sure its flexible so you can actually lean against the wind when markets are doing well and you can take opportunities when markets aren’t doing well.”

“You need a really flexible governance structure because what you don’t want to be in, is a situation where the markets are offering very good returns and you can’t do anything because you haven’t got an investment committee for two months, you need to get your consultants in the room and by the time you have made your decision, six months have passed and you’ve missed the opportunity”.

He also noted that well governed companies tend to perform better over the long-term than the universe. In addition, he said if you believe in the illiquidity risk premium there is money to be made in illiquid assets but he does not think you should put all your money in private equity blind polls or private equity fund to funds. There are different ways of investing in private markets, he said.

In terms of current politics and policies, Northern Trust chief economist Carl Tannenbaum said “there’s nothing that fixes a pension like healthy young people” and therefore it is an “economic imperative” to keep up population numbers. As a result, Tannenbaum hopes that there isn’t a shut down of movement of people across borders.

“Younger cultures are granted more patents, they start more small businesses, they take more risks with their capital, they help the economy to grow and they have fewer problems with their health.”

However, he warned that if you think it is going to be easy for the UK to strike bilateral trade deals then you are mistaken, as the idea of giving away industry is not welcome in Congress in the USA.

Adding to the downbeat view of the future, Hermes Investment Management chief executive Saker Nusseibeh noted that pension schemes have an expectance of the way markets and economies of the world work – that there are cycles with highs and lows. As a result, he said there is an assumption that over the long-term we can expect to make 6 to 8 per cent.

He said we now think there is a dip in the cycle and it will get better, “but why should it?” He noted that we are still suffering from the results of the 2008 crash and we need to ask whether the last eight years are an anomaly or whether we have had a step change where we are now in a permanently low rate environment.

Share Story: