Even in the best of times, defined benefit pension schemes have to be able to respond quickly to lock in funding gains. As a professional trustee, I believe fiduciary management can help certain pension schemes become nimbler, improving their funding levels and securing better value. A few years ago, I replaced an independent trustee retiring from a UK pension scheme, which was in deficit. Although the scheme was investing in a diversified range of funds, they were complicated and it was inadequately hedged against interest rate and inflation risk.
The trustee board was very committed, but it lacked some specific skills and knowledge and it struggled with selecting managers and making changes to the portfolio. By the time the trustees felt comfortable with their advisors investment ideas, the opportunities may have slipped away. I suggested that the board consider appointing a fiduciary manager to provide investment strategy advice and to manage the portfolio. The trustees quickly saw the value that could bring, and we used an independent oversight firm to help us narrow down a shortlist of providers.
To me, the most important consideration when choosing a fiduciary manager is the people. From the lead consultant, to the portfolio managers and analysts. A site visit allowed us to see the full team in action. Today, the scheme is in a much better place. Board can react more quickly to change, we have implemented triggers designed to lock in funding gains and de-risk the scheme as the level improves.
The scheme has also enjoyed lower fund management fees due to the fiduciaries access to scale. As rising inflation and political unrest adds to the ongoing economic uncertainty, we feel comfortable knowing our fiduciary manager seeks to operate robust portfolios while also targeting value for money.
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