"The Times - They are a-Changing". Are we fit for purpose?

16 February 2016

I was privileged to be invited last week to attend the Willis Towers Watson annual get together of asset managers, titled "The Times - They are a-Changing".

Certainly an interesting afternoon, lots of chat about the future of Defined Benefit (DB) Pension Schemes, particularly about the flight to liability matching and the ever-growing focus on income. Fortunately, the space created by the change in the investment strategy of the DB schemes will almost certainly be filled by the new kids on the block, the Defined Contribution (DC) investors - which will inevitably start to dominate the "return seeking" space (capital growth to you and I).

The other debate which particularly struck a chord with me was over the question of whether or not the investment industry (and I am talking all asset classes, not just real estate) actually provides what the DC schemes need. The speaker running this session highlighted 7 "DC needs" (things such as fees, liquidity etc.) and concluded that the asset management industry as a whole currently only meets one out of the 7 (which in itself is pretty damning), with a "maybe" over another two; and even the one that it does meet is the rather mundane and relatively undemanding "appropriateness of record keeping". This particular discussion ended with an "if by 2025 one firm is to become dominant in the DC space, will it be an existing manager or an "Amazon" type business?”. Interestingly, the view in the room leant towards the latter, perhaps reflecting the significant advantage that this type of firm has due to a ready-made global distribution network!

Other key messages included the need for greater interaction and co-operation between Principals, Consultants and Managers (to ensure that we are actually designing the product that the industry needs) and, not surprisingly, an ever growing focus on sustainability; whilst the latter should not come as a surprise to any of us, the conflict between being "green" and delivering investment performance is one which, in my opinion, still needs a bit more clarity.

From a personal (or KFIM) perspective, what I found particularly encouraging was that our recently launched Fund, which we did of course work closely with Towers in designing, does seem to address many of the issues highlighted over the course of the afternoon. That's ticked one box, now we just need to invest the equity - watch this space!!

All in, a thought-provoking and stimulating afternoon.


Kevin Aitchison

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