Article May 11, 2020

Surviving lockdown – the immediate value of having someone at the wheel

To support the increasing governance burden on trustees, fiduciary management can address day-to-day investment challenges.

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To support the increasing governance burden on trustees, fiduciary management can address day-to-day investment challenges.

In many industries the effects of the “lockdown” have resulted in workplace closures, furloughing of staff and a general halt in activity. But in the world of pensions, the amount of work on trustees’ plates has significantly increased. From speaking to my own clients, it’s clear they are busier than ever dealing with the wide range of consequences of these unusual times. All whilst carrying a bigger workload and using technology many of us are unfamiliar with! To quote one particularly busy independent trustee “I go up to my study at 8am and stumble out about 10 hours later, after a day of back-to-back calls!”.

Amongst this increased workload, concerns around covenant are where most time is being spent. And rightly so, given covenant deterioration is a risk that all pension schemes face. The issues trustees face range from agreeing to a deferral of deficit reduction contributions to engaging with sponsoring employers in real economic stress.

These are difficult subjects, particularly at the moment, and involve careful conversations and well-reasoned communications. All of which take a lot of time. What we’ve been finding at R&M is that now, more than ever, we can help our clients. Having an effective governance arrangement in place for pension schemes’ investment arrangements has been crucial. Trustees can focus on adding value elsewhere.

As a fiduciary manager we can get on and do what we do best, i.e. day-to-day management of the portfolio. This might include hedging decisions, asset allocation decisions and taking ownership of paying cashflows to the administration team. The chart to the right shows how having a skilled investment professional at the wheel is important. By cutting equity risk and increasing defensive assets early in Quarter 1 2020, R&M defended client portfolios from the significant market falls we have seen. All whilst proactively seeking new opportunities to capture positive returns.

The added value of having someone “at the wheel” can have a meaningful impact on return (c.2-2.5%* over Quarter 1 2020). Providing regular performance and portfolio updates ensures trustees stay well informed. This can provide peace of mind so they can focus on other matters.

A strong governance and implementation framework are particularly important right now. The risk of the three pillars of pension scheme risk (covenant, investment and funding) deteriorating at the same time is higher than usual. This is a risk the Pensions Regulator (“tPR”) encourages trustees to focus on and something that we, at R∧M, spend a lot of time advising our clients about. Particular thought goes into how to construct a portfolio whilst limiting the key risks that your sponsor is exposed to.

Fiduciary management means that investment strategy implementation is one less worry in the busy life of a trustee. If you would like to hear more about our governance friendly solutions, then do speak to us.

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*Difference in return between R&M Solutions Fiduciary Management portfolio performance over quarter 1 2020 versus R&M Fiduciary portfolio (as invested 1 January 2020) simulated performance over the same period. Past performance is not a reliable indicator of future performance.

 

Please note that all material within this communication is produced by River and Mercantile Solutions and is directed at, and intended for, the consideration of Professional clients only. This document constitutes a financial promotion within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). Retail clients must not place any reliance upon the contents.
The information expressed has been provided in good faith and has been prepared using sources considered to be reliable and appropriate. While this information from third parties is believed to be reliable, no representations, guarantees or warranties are made as to the accuracy of information presented, and no responsibility or liability can be accepted for any error, omission or inaccuracy in respect of this. This document may also include our views and expectations, which cannot be taken as fact.
The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of investments.

ES R&M UK High Alpha Fund

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