With over 250 attendees made up of scheme trustees, CFOs and other industry participants, Punter Southall encouraged schemes to question their established approaches and to consider alternatives that might be more appropriate for their needs.
Speaking at the conference, Danny Vassiliades, Managing Director of Punter Southall Investment Consulting, said schemes should think rationally when managing their investments. Specifically, Vassiliades warned against blind optimism with regards to active manager performance and increases in interest rates.
Vassiliades said: “Tempting as it is, an investment approach based on wishful thinking, unlikely sets of positive events, or belief in routes that long-term data suggests aren’t rewarding has to be avoided. Holding an active equity manager over a long period is an example of this kind of blind optimism – all the data available suggests outperformance won’t last, yet too many schemes hold on for too long.”
In a separate presentation, Joanne Livingstone and Craig Wootton, both Principals at Punter Southall, encouraged schemes to question what the most appropriate method of valuation is for them. While the majority of schemes still use a gilt yield valuation base, consideration should be given to alternative options.
Wootton added: “Received wisdom holds that liabilities should be measured on a gilts plus basis. For some schemes, those with aspirations of buyout for example, this may be the right approach. However for others, particularly those with longer term time horizons and stronger covenants, alternative approaches may be more suited to their long term strategy.”
The conference also included a presentation from Dan Auton, longevity specialist at Punter Southall. He argued that current longevity assumptions may now be over-estimated and that schemes should reassess their longevity risk taking into account socio-economic factors.
Auton commented: “Mortality rates have been higher than expected over the last four summers. While it is still too early to call this a trend, it is certainly an area for us to watch as we think about adjusting mortality assumptions.”
Held at BAFTA in Piccadilly, the conference also featured key note speeches from Stephanie Flanders, Managing Director and Chief Market Strategist at JP Morgan Asset Management, and Mark Boyle, non-executive chair of The Pensions Regulator.
Closing the conference, Boyle said: “We all have a role to play in the debate on the future of DB schemes. It is important not to make knee jerk reactions and to take a considered approach towards a sustainable future for DB schemes. The Pensions Regulator is supporting the market through our work on twenty-first century trustees and integrated risk management. We are also encouraging schemes to explore the flexibilities already available within the DB framework.”
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