Strategically speaking: Redington
People in financial services often like to talk about the impact of the work they do for end beneficiaries – pensioners, savers and so on. Few, however, impose specific impact-related targets on their businesses. Redington, the boutique consultancy started in 2006 by former Merrill Lynch investment bankers Dawid Konotey-Ahulu and Rob Gardner, has done just that.
And there is no hiding from the firm’s ambitious long-term vision to make 100m people more financially secure. It is emblazoned on Redington’s website, on the wall in its offices and features on its annual report.
So far, Redington calculates it has made some 3m people “more financially secure”. Some of these may be in defined benefit (DB) pension schemes that have undergone a risk-transfer process to an insurer, according to CEO Mitesh Sheth, but it could also include working with a trustee board to bring a scheme to full funding and beyond, advising on DC defaults, or Redington’s philanthropic outreach programme in schools to improve financial literacy (Gardner recently published a book for children on saving).
When they started out, Redington’s founders claimed they wanted to “do for pensions what Jamie Oliver has done for school lunches”, referring to the popular British TV chef. The pair advised on the UK’s first interest-rate and inflation-hedging transaction in 2003, executed for the insurer Friends Provident.
The name Redington is a tribute to the noted former Prudential chief actuary Frank Redington, who died in 1984, and who pioneered liability-driven investment.
Mitesh Sheth, CEO of Redington since the founding partners stepped aside two years ago, leads a business that punches above its weight as a small competitor of global giants. Despite revenues of just £15m (€17bn) in 2016-17, the firm advises 24 of the UK’s largest 100 pension funds.
It has also transformed its revenue base in the past five years, increasing long-term income, primarily from fixed-fee retainers, from 25% of the total in 2012 to 82% by the end of April 2017. DB assets under consulting were £360bn (€411bn) last year, and the firm has recently won its first £1m annual retainer. (By comparison, Willis Towers Watson reports it advises on $2trn (€1.6trn) of assets.)
In their first years, Konotey-Ahulu and Gardner built their business through LDI project work, often on account of others’ weakness in this area. Since then the firm has grown to become a full-service pension investment consultant, having added manager research and reporting capabilities, with a team of managers and investment strategy researchers today. A key focus has been on areas such as credit and private debt.
The CEO also says Redington is delighted that other consultants have become advocates of integrated risk management in applying a more holistic perspective to pension assets and liabilities. “We’ve never really sought out to be the only people doing it, or to follow the market. In fact, we’d rather be a small giant. We don’t want to become a bigfoot.”
The firm is also diversifying its income sources away from DB pensions, where it made its mark, by specialising in private wealth, designing outcome-orientated funds for the tied-agent mass affluent wealth manager St James Place, and has a nascent DC consulting business.
“What we want to do is to really think about how we can help clients make better decisions, how we can use trustees’ time in a wiser way, how we can deliver data not through quarterly reporting cycles, but in a live fashion,” Sheth continues. “And we want to invest time, money and effort in that, rather than just hiring more and more consultants to do more and more traditional consulting.”
Recently, the competitive landscape in UK pension investment consulting has come under close scrutiny as part of the FCA Asset Management Review and the Competition and Markets Authority (CMA) investigation. Perhaps counterintuitively, Redington has said its existence demonstrates that there is not a competition problem in investment consultancy, and it has been working with the CMA on templates for future competitors.
In the 2010s, technology allows the likes of Redington to compete by developing and using cutting-edge technology – for instance in the communication tools it is developing. Redington’s manager research tool now has its first licensee and Sheth thinks Redington can grow revenues by licensing abroad.
Redington recently recruited its first chief technology officer, who works alongside the CEO and the board to improve product and technological development. There is also an R&D function to test new areas, according to Sheth, and the firm has recruited specialists in behavioural science and governance.
“One of the research projects is artificial intelligence. Where in this value chain can we apply artificial intelligence? One of the projects we’re looking at is gender bilingualism, and how we can provide better savings products for not just dominated by men, but for women as well.”
As China embraces risk management in its insurance market with the C-ROSS (China Risk Orientated Solvency System), Redington is in the exploratory stage of an expansion project. It has co-authored a paper with CIRC, the Chinese insurance regulator, and has been talking to insurers about modelling work.
As to the future, Sheth comments: “We’re 12 years in, but we still see ourselves as a start-up. We don’t have big, rich capital that we can just throw at things. We begin small and lean and really want proof of concept.”
So Redington is not planning for exponential growth. Indeed, it now has a head-count cap of 200 and is selective about the clients it takes on; the firm turned down around eight of the 22 DB RFPs it received in 2016-17.
“There’s a real risk; we throw more and more bodies at it, and hire more and more consultants, and risk delivering less and less quality advice to many more pension funds. And we worry that’s what might become of us if we just go after size.”
And Sheth adds another dimension to Redington’s ethos: “We want clients who we can be honest with. So we have always said we will be truth speakers. We will tell you what we think you need to hear, not necessarily what you ask and want to hear. And that will mean we’re not the right fit for everybody.”