Howard Brindle, from the UK’s Universities Superannuation Scheme Investment Management says the insourcing question is a matter of scale.
Howard Brindle, the chief operating officer at Universities Superannuation Scheme Investment Management, is one of the most experienced investment operations executives in the pension industry. Before joining the £57 billion ($92.6 billion) fund, which runs about two-thirds of its assets in-house, he was head of JP Morgan’s European Transfer Agency Product and chief administration officer for Lehman Brothers Asset Management Europe.
Ahead of visiting Australia to deliver a keynote address on business transformation at the Conference of Major Superannuation Funds, he answered a few questions for Investment Magazine.
IM: What is the most critical operations factor for dealing with growth?
HB: The strength and experience of your people. You need strong, experienced senior staff who understand how investment businesses work. Attracting good quality people involves a number of things, not just remuneration; developing a positive culture is important, certainly in terms of retention, and is something we focus on a lot at USS.
Having strong senior staff also helps, as good people tend to hire good people.
Of course, being at one of the biggest and most innovative pension schemes in the country helps, too. Working in a pension fund is an incredibly attractive alternative to hedge funds and big banks.
We provide all the complexity, challenge, variety and pace of those environments, but with fewer artificial, client-related deadlines, and without the internal bureaucracy of a large organisation. As a result, we are able to attract and retain top-quality talent, and can give them as much responsibility as they are able to handle.
What are the critical systems and processes superannuation funds should have in place if they are to bring assets in-house?
The benchmarking is clear: when a certain scale is reached – I would say greater than £5 billion per asset class, maybe £10 billion for equities – the cost advantage means that in-house teams perform better. I’d add a caveat to that by saying you should in-house only assets for which you have scale and only when you are confident you will be invested in them for the long term.
For a defined benefit scheme, or any multi-asset fund, the starting point is an investment book of record, with a consolidated record of all assets, linked to a risk system. Asset allocation is the biggest investment decision a scheme makes. For single-asset, defined contribution funds, an investment book of record is not as relevant.
Is it essential to have good performance analysis tools should trading be done in-house? If so, what systems should be used?
For managing the actual underlying assets, portfolio management is the most critical system. Performance reporting, accounting, valuation, collateral management – they can all be outsourced effectively. But a portfolio management system is key. Historically, these were different per asset class, but now there are solutions (e.g., Bloomberg AIM, BlackRock Aladdin) that can cover most asset classes from a single system, and can also support processes from front to back.
Having a simple core system architecture is a huge benefit.
Trade execution can be outsourced, although not as easily. However, we’ve not felt the need to do so, [thanks to] more electronic trading venues, more seamless integration of execution venues with core portfolio management systems, and appropriately skilled portfolio managers.
To get the most out of our core systems, we use a highly skilled in-house development team that enables us to support any new business initiatives, such as integrating new teams, new external managers, new analytic systems, new reporting and so on.
To read the full Q&A with Howard Brindle, see the extended version of this article in the April 2017 edition of Investment Magazine, which is the official media partner of AIST and the Conference of Major Superannuation Funds.