Do fund managers do what they say? Well, it seems not. At least when it comes to the frequency they change portfolio stocks.
Some equity fund managers have higher portfolio turnover rates than they claim, according to Investment Horizons, a report by Mercer, the consultants, and New-York based Investor Responsibility Research Center Institute.
The Irish National Pensions Reserve Fund is getting a rough ride at the moment. Having been forced to pick up the tab for the recapitalisation of the Irish banks (some €7bn worth of preference shares in Bank of Ireland and Allied Irish Banks), it is about to lose its chief executive, John Corrigan, who moves upstairs to replace his boss, head of the National Treasury Management Agency, the NPRF’s parent body.
This will not be a pleasant job, but nor will running the NPRF. As well as easing in a new chief executive, it has to work on reconciling its responsible investment policy (it has signed up to the UN Principles for Responsible Investing and is a member of the Carbon Disclosure Project) with its legal mandate to “secure the optimal total financial return provided the level of risk to the moneys held or invested is acceptable”.
According to human rights advocate Mark Cumming, the contradiction between this and the NPRF’s own stated intention to “incorporate ESG factors into investment research, analysis and decision making” stands in the way of its developing coherent policies.
If the Irish government can push through amending legislation requiring the NPRF to bail out the banks, surely it should be able to rewrite the NPRF’s mandate in order to allow it to take long term non-financial risk factors into account and ensure Irish pensioners will not profit from destructive corporate practices such as human rights abuses or uncontrolled environmental damage.
Praying for a market miracle
The revelation that the Church of England is relying almost exclusively on returns from equities to pay vicars’ pensions in the future raises an interesting question: which institutions can afford a sufficient time horizon to be able to rely on the expectation that equities will outperform bonds over the longer term?
Norway’s Government Pension Fund seems to have it all. Oil wealth, decent returns and a responsible approach to investment.
The decision to put part of its oil wealth to work for the country’s pension pot is one that makes many pension savers in other parts of the world gnash their teeth in envy, particularly if they happen to live in a resource-rich country that has not invested its black gold in the same way, such as the UK.
Consumers have low levels of financial literacy
Are we financially savvy enough to make the right decisions about how to invest for retirement or calculate mortgage payments or avoid the danger of repossession?
Not enough people are, according to the OECD. In a recent study the organisation found consumers not only have low levels of financial literacy preventing them from making informed financial decisions but they often overestimate their knowledge and skills.
Now Allianz has launched a website where people can find out about a whole range of financial terms to help their decision making, from estate planning to merging portfolios after marriage. There’s even a chance to trace how the price of coffee has increased in the past 30 years or how it might change in the future.
And if that doesn’t help to demystify some of the jargon then try the Financial Times lexicon.
Hewitt risks raising expectations too high
Most days I can rely on a communication from some investment consultant or other landing in my inbox bemoaning something about pensions.
Today it is Hewitt Associates, which quotes some nice round figures about the danger of 15,000 people in the UK losing at least 20 per cent of their pension benefits if trustees of defined benefit schemes do not “take control of investment strategy”. It says £150m of pension benefits are at risk over the next two years.
The challenge of setting up independent pension trustee boards is an uphill task.
Any hopes of making progress were dashed today, reading the latest findings from Trustee GAAPS. Only one third of pension trustee boards of FTSE 100 companies are independent, according to the trustee search firm.
Fund managers are in the unhappy position of being able to see the oncoming train but unable to move because their hands are tied. Even though they think climate change is a source of investment risk, their short-sighted clients are not letting them do anything about it.
According to research by FairPensions, nearly 90 per cent of fund managers think climate change is an investment issue, but feel they can’t do anything because of short-term analysis and lack of demand from pension funds.
The prospect of living in poverty or at least in tightened circumstances in old age is not daunting British workers.
One in three people currently at work plan to rely on whatever the state provides when they retire, according to research carried out for Baring Asset Management.