Is change the new normal?

Sanlam Investments Institutional Insights conference offers top global perspectives to guide fiduciaries

In a landscape of continuous change and disruption and in an investment environment marked by low growth and low interest rates, retirement fund trustees have to reconsider traditional models of investing and find innovative new ways to meet their fiduciary responsibilities. Leading fellow fiduciaries at the 2016 Sanlam Investments Institutional Insights conference in Johannesburg this week agreed that old-fashioned “defined contribution” plans were in need of change – particularly since convincing millennial newcomers to adopt a savings culture was proving a hard sell.

The conference featured an acclaimed panel of speakers from across the globe, including Antony Barker, Richard Foster, Mark Fawcett and Sonja Kellen, who debated how to drive better outcomes through innovation. Antony Barker, Chief Pensions Officer at Santander Bank in the UK, made the case for portfolios constructed using direct investment in private equity, infrastructure and hedge funds. He argued that “legacy pension funds” had failed to keep their promises, either to new members or those receiving pensions. The main reason for this, he said, was that few asset managers were able to demonstrate consistent performance and skilful risk management using standard stocks, bonds, cash and property.

“We need to create vehicles to channel funds into new opportunities – it’s all about diversity. Why should we exclude anything? Capital growth, high returns and yield can be found anywhere in the world if you are prepared to take a long-term view.”

Corporate governance specialist Richard Foster, who serves as an independent non-executive director in various South African and foreign companies, said the new King IV guidelines would directly assist in driving growth in the present investment climate. King IV, to be released on November 1, sets out simple parameters by which entities such as companies, parastatals, pension funds, municipalities, etc can improve their governance practices and reap better outcomes via exceeding investor and other stakeholder expectations, said Foster.

“The guidelines provide a qualitative application report by which anyone can analyse and measure the value gained by responsible governance. It’s not a question of paying lip service to an ideal — you can actually see what lies beneath. For corporate entities, full disclosure will be aspirational.”

Mark Fawcett, Chief Investment Officer at the fledgling National Employees Savings Trust (NEST) in the UK, is mandated to target lower-income working people whom private pension funds deem un-economic. Since launching in 2008, NEST has had to think of unconventional ways to both attract new members and retain its present 3.5 million membership.

“Pensions are boring and confusing, so people tend to make bad, rushed decisions — for example by blindly opting for the default choice, or opting out of the system altogether.”

Fawcett’s solution is to offer a limited number of managed multi-asset choices to members based on their appetite for risk, as well as default, Sharia and ethical options. The idea, quite simply, is to use behavioural finance to empower young people to be “comfortable with saving”. Members can switch between options as they please.

A similar challenge was faced by Sonja Kellen, Director of Global Retirement Benefits at Microsoft: how to convince the company’s 60,000 US employees that they would not only have to increase their personal savings but up their contributions to their employer’s pension fund to cover their post-retirement needs. Tech-savvy Microsoft employees were demanding a tech-savvy solution. It came in the form of an easily accessible internal portal. On its “three-click” menu, it enabled employees to enrol quickly, find an appropriate rate of savings and receive pointers to the wisest investment choices given personal circumstances. The plan can then immediately be put into action.

To date the scheme has attracted 91% of Microsoft’s employees, whose average savings rate is 12% of their salary. Interestingly, younger members choose even higher savings rates. Costs have been driven down by focussing on efficiencies in the process and structures, including a shift of assets into indexed strategies. In this way, Kellen says the company has “managed to balance innovation in member savings and plan design while meeting its compliance burden”.

These are just some of the key insights trustees could leverage to deliver positive retirement outcomes for their members. While change may be the constant, so too are the benefits of collaboration. Institutional Insights has become a popular and dynamic platform, where delegates come together to discuss the ongoing challenges facing fiduciaries, and we look forward to continue sharing rich insights and global perspectives.