GLOBAL – The long-term mandate competition organised by UK university pension fund USS has been won by Henderson Global Investors, with an entry which proposed a “dynamic benchmark” approach.
The competition was launched in March 2003 by the Universities Superannuation Scheme and Hewitt Bacon & Woodrow. It sought to award those who could successfully respond to an imaginary 30 billion-euro mandate “that operated in a genuinely long-term and genuinely responsible manner”.
Henderson’s winning proposal’s objective was to grow the notional mandate “at a rate above that required to meet all future liabilities, without taking undue risk”.
The submission sought to take advantage of the longer-term investment horizon to “produce superior returns relative to risk free assets over the long term, on a rolling five to 10 year basis, rather than to beat market-based benchmarks over a shorter timeframe”.
It put forward a dynamic benchmark idea. “Monitoring achievement against the fund’s principal objective will require the construction of a tailored benchmark for the overall fund – this should incorporate a rolling record of liability assumptions, together with a similar record of investment assumptions.”
“This will result in the fund benchmark itself being dynamic,” Henderson said. “The performance of the total fund will be measured annually, and will be analysed relative to the benchmark over rolling periods – both medium and longer term.”
“We are very pleased to accept it,” Arno Kitts, Henderson’s director of investment marketing, said at the awards presentation last night. He paid tribute to Henderson’s core team of John Williams, Rob Lake and Tony Dolphin. “It’s great to contribute to the debate.”
Henderson was one of three corporate entries that were shortlisted, the other two being Schroder Investment Management and Sustainable Forest Systems. There were five non-corporate entries – there was no clear winner in this category.
It was hoped that the competition would stimulate debate and new ideas. “This is the end of the beginning,” said Raj Thamotheram, head of socially responsible investing at USS and the originator of the idea of running the competition.
Nick Fitzpatrick, head of global investment consulting at Hewitt Associates which helped organise the competition, said the judges had come to a unanimous decision about the winner.
“We haven’t got the golden bullet,” he said. “We haven’t solved all your problems at once. This is the start of the start of some new thinking.”
John Troiano, executive director at shortlisted Schroders, said: "The range of available investment solutions will increase as pension funds focus on longer dated mandates with objectives set in relation to liabilities or inflation.
“This is the route to provide future security for pension fund provision and with our Strategic Solutions capability we are well positioned to provide such advice alongside consultants to pension funds facing an increasingly challenging environment.”
The contest was not universally applauded. “The competition called for radical ways of managing retirement assets in a genuinely long-term and genuinely responsible manner, but there are frankly no new ideas in the eight finalists’ submissions, only old ideas dressed up,” said Andrew Slater, director of institutional strategy at SEI Investments.
He said the problem lies in “the failure of trustees and their advisers to cease the self-denial and have the self-conviction to rise up away from the herd and implement the good ideas put forward”.
“The competition highlights that consultants have been little more than matchmakers bringing buyers and sellers together, failing to bring innovation to the industry,” Slater added.