Saker Nusseibeh, the investments chief of the £32 billion ($51.3 billion) BT Pensions Scheme’s funds management arm, says the pensions industry should focus on the more realistic aim of generating sustainable risk-adjusted returns instead of trying to shoot the lights out, time after time. The head of investments at Hermes Fund Managers, which is fully owned by BT Pensions, says the ability to generate risk-adjusted returns is not rare. And when discerning investors appoint active managers to deliver it, they should demand more conviction.
The average information ratio across the industry was 0.5, he says, and “if you’re taking active fees, you need between 0.5 and one, and I’d like it to be near one”. With the exception of its quantitative-plus team, Hermes aims to be a house of active managers consistently delivering risk-adjusted, “sustainable” alpha across its equities, alternatives, unlisted assets and engagement services. In doing so, the manager is working to bring back an older style of institutional asset manager and client relationship. Nusseibeh says: “20 years ago, when I started in the business, [managers] said they looked after people’s pensions. If you talk to funds managers today, they talk about highly specialised products.
“If you look at the crisis of 2008, sub-prime and easy credit were not the reasons why [it happened]: the crisis happened because funds managers abrogated their fiduciary responsibility to clients. “Funds managers knew that credit default swaps were reinsurance. Any funds manager worth their salt knows reinsurance needs an asset base. Even when investment banks were selling this rubbish, why didn’t [managers] speak out?” Over the years, managers’ sense of responsibility has been lost, so that “if you sell a client a product, then it is ‘buyer beware’.” He says the “crusading” nature of these comments is justified: “Funds management is an honourable profession – you’re looking after people’s retirement money. Not rich, but hard-working people.”
He adds the payout to many of the BT Pension Scheme’s defined benefit members is about £8,000 each year. “Somehow the industry got sucked into becoming investment banker wannabes.” When institutional appetite for high returns overpower the aim to deliver risk-adjusted return, it often originates within clients and is then encouraged by managers, he says. “But if clients forget what longterm returns mean, it is our job to remind them. “If I believe that an asset class is over-valued, and you want to invest in it, I should say: ‘This is the wrong time – you should take money out’.”