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SSGA’s Brown rounds on actuaries, managers, trustees

UK - Alan Brown, chief investment officer of State Street Global Advisors, is the latest figure to take on what he calls the “villains” of the pensions industry.

Last April, PricewaterhouseCoopers pensions partner John Shuttleworth made a blistering attack which started with (in alphabetical order) accountants and ended with trustees. Parliament and the media came somewhere in between.

Now however, the cudgels have been taken up by Brown, who is naming and shaming the five parties whom he says are obstacles to much-needed change.

He points the finger at trustees, blaming them for a herd mentality in investment decisions.

“Investment issues are complex and not readily understood by the layman,” he says. “So it is difficult to get trustees to do anything different from their peer group.”

Next in line are accountants and actuaries. Brown says: “It is the actuaries who determine the rate at which the liabilities of a pension plan may be discounted, which is dependent on the fund’s asset mix.

“A high equity content means that a higher rate of return can be assumed, and therefore your liabilities go down. This can mean that mature funds in a deficit position may not have the option of raising their bond content, because the impact on the liability side would be too great. What sense does that make?”

Finally, he trains his fire on fund managers. “Over the last twenty years, they have organised themselves to deliver more specialist mandates,” he says.

“Most of the solutions for better best practice involve multi-asset class mandates. Furthermore, this has affected the way they are internally organised, and it means that there are few track records of relevance to consider. That will discourage some clients.”

A spokesperson from the fund management trade body, the Investment Management Association, declined to comment.

Another of Brown’s targets is Irish wordsmith Oscar Wilde. Brown said: “Wilde’s many quotes included the line ‘Marriage is the triumph of optimism over experience’. The equivalent in our world may well be, ‘Equities are the triumph of optimism over experience.’ The substantial rally in equities may cause a collective sigh of relief, and a hope that we are back in business as usual. We think that would be a mistake.”

Another victim of his scorn – this time still living– is Alan Greenspan. But Brown admitted that the Fed Chairman had not actually done anything to merit blame.

He said: “I am using his name to acknowledge that many people will wonder whether this summer marked the end of the bull market in bonds. If you are in that camp, you may well want to run a duration mismatch between your assets and liabilities as a conscious bet. Since most new approaches also suggest a greater use of fixed income investments, here is another reason for not doing anything.”

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