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Special Report

ESG: The metrics jigsaw


NAPF gets to grips with SIPs and BRICS

Lord Hutton's final report on UK public sector pensions was not the only matter discussed at the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh, although the presence of the former work and pensions secretary was certainly felt.

Jim O'Neill, chairman of Goldman Sachs Asset Management, discussed at length why he believed applying the term emerging markets states to some countries was not only not accurate, but was masking the true potential of several places falling under the banner. Instead, he put forward his theory on why eight of the countries, including Brazil and Turkey, should no longer be viewed as emerging markets but as growth markets. One of his more convincing reasons was that before long, the G7 states would account for 40% of global GDP, with this newly-formed block of ‘growth 8' laying claim to 35% of world GDP.

Meanwhile, Professor Peter Moizer of the University of Leeds suggested that the current set of accounting rules drove investment decisions and agrued that this problem was in urgent need of addressing. He insisted that the ‘fair value' approach to pricing pension scheme holdings had led to the decline in defined benefit schemes, as they looked to address ever-growing pension deficits. He was also asked about the possibility of developing scheme-specific accounting, a method he agreed with wholeheartedly.

Another discussion, addressing the need for investment beliefs, questioned the ideal length of the Statement of Investment Principles (SIPs), a document every UK pension fund must have outlining its approach. Many in the room believed that brevity benefited pension funds in this area, as it outlined its ideals without tying it down in detail that might later hinder it.

Panelist John Chilman, a trustee of the Railways Pension Scheme, argued that, by becoming overly long, SIPs became inflexible. He said that trustees had tried to "cut down on a lot of detail" to allow flexibility and focus on key issues, as problems arose in 2008 when sponsors felt they were not reacting to market environments, while still staying in line with SIPs.

Other discussions examined included the structure of defined contribution, as the UK prepared for the rollout of auto-enrolment, with Robert C Merton, a Nobel laureate in economics, urging any widespread introduction of DC to link the schemes to minimum guarantees, as well as never to consider alpha investment the "lynchpin of retirement".

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