NAPF Conference Report: reconciling short-termism and stewardship

The tension between long-term aspirations and short-term pressures

The National Association of Pension Funds’ annual Investment Conference in Edinburgh last week provided a demonstration, if any were needed, of the tensions between long-term stewardship and the realities of investing in today’s volatile and uncertain climate.

On the one hand, there was a welcome increase in governance focus at the conference – with an address from Professor John Kay about his forthcoming report into equity markets and short-termism a highlight.

Kay spoke of the “misalignment” of interests between trustees and the managers they employ. But he said calls for more information and transparency led to increased costs and information overload. He emphasised dialogue instead of compulsory disclosure. “It is pounds, not alpha [market outperformance], which pays pensions,” he said. He saw a paradox because corporate engagement is encouraged but participants are worried about being punished for acting on the fruits of their meetings with management.

And Mark Mannion, Chairman of the NAPF Investment Council, refuted the charge from former City Minister Lord Myners that funds were “absentee owners”. “Well, we’ve never accepted the view that we were irresponsible owners as you’ve heard many others before me argue,” he said – pointing out that more than 40 pension funds have now signed the Stewardship Code. And he said the NAPF would continue to press companies on excessive bonuses and remuneration.
Keynote speaker Rachel Reeves, the opposition Labour Party treasury spokesperson, called on pension funds to play their role in responsible capitalism as engaged investors – “holding companies to account as part of their fiduciary duty”.But ranged against this solid focus on the governance responsibilities of investors is evidence that pension fund trustees are becoming ever more short-termist in their actual behaviour.

For example, one executive at a major custodian bank told RI at the conference that there is an enormous demand from both corporate and local authority pension fund clients for daily portfolio monitoring – branded as “completely ridiculous” by a senior investment consultant.

“Trustees are so short-term at the moment,” the consultant remarked to Responsible Investor, saying they are focused on market volatility and the covenant with their sponsors.
And, as if to demonstrate the broader challenges faced by funds, the start of the conference was marked by the NAPF’s claim that quantitative easing was costing UK funds £90bn getting front-page treatment in the Financial Times.
And separately, a new survey of trustees has found they spend an average of just 15.5 hours a year on investment issues. One vital issue not addressed at the event was the likelihood many schemes will be looking at going into wind-up and transferring their assets to insurers.
A word that cropped up several times at the event was trust, referring to the relationship between investors and managers. Gerry Degaute, CEO of Royal Mail Pensions Trustees, spoke about the difference between “trust and contract” in the breakout session on stewardship. And some asset management executives told RI informally they are looking to rebuild trust with clients, possibly by offering multi-asset mandates along the lines of old-style balanced mandates.