Three years of the 300
Liam Kennedy spoke to Alan Brown and Saker Nusseibeh, two architects of the 300 Club of investment professionals who seek to challenge mainstream investment practice
As it celebrates its third anniversary this autumn, the 300 Club group of international investment professionals recently admitted its fifteenth and first female member in the form of Sally Bridgeland, former Aon Hewitt consultant and CEO of BP Pension Fund. Other recent appointees include Roger Urwin, Towers Watson’s global head of investment content and Stefan Dunatov of Coal Pension Trustees.
The group’s name recalls the 300 Spartans who held out against the numerically far superior Persians at the Battle of Thermopylae in 480 BC. It defines itself as a group of investment professionals committed to challenging the mainstream of investment practice.
Among its features is that its membership includes representatives of the buy and sell sides, as well as advisers. The group aims to meet twice a year, either in person or by conference call. Aside from sympathy with the aims of the group, new members agree to produce at least one paper in the first year. There is no formal publications committee for 300 Club papers, although each is reviewed by the other members. While they may not necessarily endorse all of the ideas put forward, the members agree that publications published in the name of the group are rigorous and that the paper has a valid conclusion.
One of the 300 Club’s founders is Saker Nusseibeh, CEO of Hermes Investment Management, who recently handed over the chairmanship of the group to Kempen Capital Management’s CIO, Lars Dijkstra, who is also a founding member.
“What we’re saying is that senior investment professionals from the buy and sell side have reviewed the paper and agree that it is internally consistent and has a well-argued or a cogent argument,” Nusseibeh says.
Another of the group’s founding fathers is Alan Brown, former CIO and now senior adviser at Schroders, and a governor of the Wellcome Trust, the UK’s largest foundation. Brown says there was “less career risk” for him, given that he was looking to step down from his full-time role at Schroders at the time, and both he and Nusseibeh concede their positions made it easier for them to start the 300 Club.
But they both feel it took guts for others to stick their necks out so publicly in an industry where those who challenge the consensus are easily marked out as mavericks. “Having more names makes it easier because people are less scared of joining. With my exclusion, do not underestimate the amount of moral courage it took to join,” says Nusseibeh.
“One of the underlying reasons for that is that this group is signing up to calling it the way we see it on behalf of the client,” Brown adds. “Not on behalf of our firms or the industry but what is right for the people who own the pools of capital.”
It is perhaps surprising how hard can be to do this in the investment industry.
Aside from alignment of interests with capital owners – not a radical idea in its own right – what is the group really about? In the autumn of 2011 when it launched, the group’s stated aim was to “raise awareness about the potential impact of market thinking and behaviours” and to “spotlight irrational and dangerous market behaviours and assess their implications”.
Part of the 300 Club’s purpose is to provide a collective voice for senior professionals to speak out collectively where no such mechanism existed before. Nusseibeh thinks the investment management profession, and senior fund managers in particular, were particularly to blame for the 2008-09 crash, not because they were responsible “but because our job was to analyse markets and many of us knew what was wrong”, as he puts it.
Nusseibeh continues: “The 300 came about as an attempt to get thinking senior fund managers to talk about things they think are important and to say things that are controversial – some of which will resonate well with the media, some of which will not; some of which will resonate well with government and some of which will not.” The point is that members are willing to say what they think in public.
Among the topics the group singled out in 2011 at launch were complexity of investment instruments, the industry’s focus on products rather than investor needs and the view that markets always rise in the medium to long run. So far, there have been five papers.
Among the most recent output, a paper by Stefan Dunatov, CIO of the UK’s Coal Pension Trustees, in June this year takes issue with the use of volatility as a measure of risk and argues that today’s widespread aversion to volatility endangers investors’ ability to meet their long-term objectives. A paper by Brown in April 2013 argues that improved governance models are key to achieving a more dynamic asset allocation model. In his October 2012 paper, Lars Dijkstra, CIO of Kempen Capital Management, argues for a bolder, more ambitious partnership between asset managers and investors.
Brown’s paper is inevitably shaped by his experience as chairman of the investment committee of Schroders’ staff pension fund, which implemented an early form of diversified growth strategy in 2005.
He says that doing something different can mean being on the wrong side of the argument for significant amounts of time, which in turn requires changes in governance structures. For the Schroders’ pension fund trustees, this meant taking control of key issues, such as the funding ratio and the derisking plan and, importantly, minuting these decisions in detail so that they can be reviewed at a later date if they prove to be wrong.
“We ask ourselves whether our assumptions were horribly wrong, in which case we move on, or if they weren’t wrong then we’re not going to worry because we are on a 30 to 40-year journey and we’ll tough it out. Everything is a collective ‘we’ – and it’s a much more interesting conversation.”
As it grows, the group will likely become more disparate in its opinions, even if its members, by definition, ought to agree on more than they disagree on. Now that it has diagnosed a set of problems and has a three-year track record, what do Brown and Nusseibeh think the club will need to do to say it has achieved something?
Brown thinks investment professionals should get more involved in policy debates, and says they can do without being seen to serve their own interests. “It’s always assumed that we’re going to be self-serving,” he says. “We’re tarred with the same brush as principal businesses, even though we’re an agency business. We should get out there.
“I’d like to see the 300 Club publish more and do more with what we publish. My [key performance indicator] would be how many thoughtful papers have we written and how many of those are being picked up, not all necessarily accepted, and have entered the debate with policy makers, or in the industry as a whole.”
Nusseibeh targets a change in the understanding of risk management. “If there’s one thing I’d like to see change in the next three years, is if we can convince people that volatility is not risk,” he says.
“When you start thinking about issues like this you start moving the market. Our primary duty is to the savers, the people we look after. It’s not just about selling them the product we want to sell them but giving them access to our thinking.”
300 Club white papers
The Death of Common Sense, Prof Amin Rajan, April 2012;
A Call for Honest Fools, Dylan Grice, July 2012;
From Short-Term Salesmanship to Long-Term Stewardship, Lars Dijkstra, October 2012;
Dynamic Asset Management and Fund Governance, Alan Brown, April 2013;
Defining True Risk, Stefan Dunatov, June 2014