Pension funds should become more open to taking in investment risks, said Andrew Griffith, economic secretary to the Treasury, in his opening speech at the PLSA Investment Conference in Edinburgh. The government’s push to increase institutional investment in UK assets has dominated the event.
Speaking in a pre-recorded message to attendees from across the institutional investment industry, Griffith said that the pensions industry tended to have a risk averse culture and pledged to turn this around: “I want us to be positive about taking risks and celebrate successful risk takers, but also recognise that even without taking risks, there is risk in the system; we are taking risk in lower returns for our pensions and in a weaker economy,” he said.
His comments come amid ongoing government consultations to attract more pension fund investment in the UK economy, and the chancellor’s announcement in the Spring Budget that he wanted to see “further and faster” levels of pooling.
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Griffith’s comments received a mixed response from delegates. Speaking at a panel following the session, Rachel Brothwood (pictured above), executive director of pensions for the West Midlands Pension Fund, while not denying the opportunities, said: “There has to be a case for pension funds to invest, risks and returns do have to stack up and our primary responsibility is with our members.
“We can’t ignore that we are facing some real socio-economic challenges as a nation, and that is going to require some deep thinking; thinking more about the environment and how we can make it viable for pension funds to invest. There are examples in the LGPS where this is happening but it is still happening at a very small scale.”
Brothwood also criticised the lack of clarity from government in the sort of assets that it wanted pension funds to invest in. While the government’s discourse centred on investments in illiquid assets, the portfolio implications of a commitment to property or private equity, for example, could be very different.
She also said that if pension funds were seen to be backing up the taxpayer, rather than members, this risked undermining their credibility as the guardians of members’ money. “Fiduciary duty is the bedrock of our pension system and we can’t risk undermining that,” she warned.
John Chilman, CEO at Railpen, made the case that many UK pension funds were already overweight on UK assets. “We are fine with taking on more risk, as long as the government underwrites that risk,” he said – a comment which was welcomed with laughter and applause by the audience, reflecting the mood among many delegates.
Speaking at a later session, Richard Tomlinson, CIO of LPPI, said that as LGPS pools were growing, they had increased capacity to take investment strategies in-house, but he also highlighted that a larger pool of assets was not always the ultimate goal and that bigger was not always better.
Pointing to an increasingly multipolar geopolitical environment, he did raise the question of whether increased investment in UK assets could to some extent shelter pension funds from exposure to geopolitical risks.
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