Blog: Asset managers not acting in clients' best interests

It is often said those that fail to learn from history, are doomed to repeat it.

In just over ten years writing about pensions, I have seen the fallout from the dotcom crash of early 2000, the market lows of early 2003, a recovery to the peaks of 2007, the market crash of 2008 and a gradual recovery in values since.

Yet, while the way in which schemes invest assets has changed over that period, many things have also remained stubbornly the same.

All too often schemes seem to play follow the leader in their investment strategies and, all too often, asset managers fail to speak out about the dangers they foresee.

Hermes Fund Managers head of investment Saker Nusseibeh believes asset managers have often failed to speak out about products and strategies they ultimately knew were not in their clients’ best interest, especially during the financial crisis of 2008.

He says investment managers now need to become not only responsible investors but responsible asset managers as well – giving much stronger opinions and advice to pension scheme clients.

He believes there are currently three major risks to pension scheme investments that are not being adequately flagged up by the industry at large (see: www.professionalpensions.com/2039050).

One of these, he says, is the herd-like shift towards de-risking – a shift which Nusseibeh says is based on the belief that holding bonds is the less risky option.

He is not convinced this is the case – noting higher inflation and interest rates and a return to the historically higher levels of bond volatility would all negate the benefits of de-risking.

An increasing number of others are also questioning the wisdom of investing in bonds at the current time – including AXA Investment Managers fixed income chief investment officer Chris Iggo, who urges investors to steer clear of bonds should they wish to maintain capital values and secure a positive real income, and former City minister Lord Myners, who branded the bond market as an “enormous bubble” ready to burst.

Asset managers, of course, are not always right – yet, should the views of the growing number of voices dissenting from the bond-led de-risking orthodoxy be ignored, tomorrow’s history may well provide us further lessons we can learn for the future.

Jonathan Stapleton is editor of Professional Pensions
Email him at: jonathan.stapleton@incisivemedia.com
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