GLOBAL TRENDS
Such examples are “not huge” in a global sense – perhaps £5-6bn in a passive book – but are large compared with most UK funds. But as defined benefit (DB) schemes mature, there are more of them about.
The move is not confined to any one jurisdiction, such as North America or the UK, says InfraHedge CEO, Bruce Keith. “This insourcing trend is not focused on any one region,” says Keith and the reasons for doing it are largely about ownership; these large funds increasingly want to own the strategy, the risks and of course, the outcomes and as a consequence are taking a more active role.
“They are clearly focused on where they are spending their money and in the case of large US schemes running their own longonly, fixed income books, they are looking at the alternative assets and their third party providers and seeking greater transparency and control,” he says.
SAUCE FOR THE GOOSE
The pressure on schemes to get things done with minimum error is no less severe on the thousands of smaller schemes in the UK.
Nick Ridgway, head of investment research at Xerox HR Services, says technology has improved, data is getting better and schemes want more and better information about their liabilities profiles, risks, and how these play into the strategies they want to explore.
“Pension scheme trustees are under pressure to reach more informed decisions, more quickly and effectively and data is essential to be sure they make a decision they are comfortable with,” says Ridgway.
However, the pattern of triennial valuations does not sit easily with this demand for data. Though it shapes the strategy, schemes require more sophisticated data processes as they need to model more regularly than every three years.
“Valuations offer an opportunity to revisit the investment strategy and see whether it remains fit for purpose,” says Ridgway, “but it’s an outcome-orientated world and investment is integral to make funding level decisions. Trustees can’t wait for three years.”
THIRST FOR KNOWLEDGE
The need to know has changed the way people view the role of technology, says Kim Gubler, director of KGC Associates.
“When we do procurement – whether admin/actuarial or investments – people ask much more about what technology can do for them, what outputs it can deliver,” she says.
This has changed the dynamic in many schemes, leading to far greater interactivity between the scheme, trustees and sponsor in terms of funding models and access to administration databases, she says, with the sponsor wanting the same data in order to do profiling itself.
“Dynamic funding models have informed investment strategies to help schemes pick the right moments for derisking,” says Gubler. This requires far more connection between the pieces of technology and how they are used, in order to get away from “silos of data”.
