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AIM High: The legacy and leadership of the UK pensions industry · Two in Twenty

• 0:02
  SPEAKER_02: Hello and welcome to another episode of AI.
• 0:06
  SPEAKER_02: My name is Twink Field.
• 0:07
  SPEAKER_02: As you know, I'm the host of these podcasts and CEO of White Marble Marketing.
• 0:12
  SPEAKER_02: And today we are getting a little bit more technical, I guess, talking about the UK pensions industry, making sure that we all are absolutely clear of kind of how it's evolved and what what the future looks like for the industry and the challenges.
• 0:28
  SPEAKER_02: We've got two great speakers, Charlotte Moore, who is a well-known and award-winning journalist in our industry, specifically in institutional titles, and Joe Sharples, who is a partner at Aon.
• 0:46
  SPEAKER_02: So we're excited to have them both, particularly in a time when institutional investors have been encouraged by the UK government to invest more broadly in UK assets.
• 0:57
  SPEAKER_02: So it felt like a great time to dig into this subject matter.
• 1:04
  SPEAKER_02: Joe, Charlotte, thank you both so much for joining me today to talk about the UK pensions industry, the kind of the legacy of it and the leadership within it and how we see it evolving.
• 1:15
  SPEAKER_02: Before we get into the questions, perhaps I can ask each of you to introduce yourselves.
• 1:23
  SPEAKER_01: Hi, so I'm Charlotte Moore.
• 1:25
  SPEAKER_01: I'm a freelance journalist.
• 1:27
  SPEAKER_01: When I'm wanting to really sell myself, I say I'm an award-winning freelance journalist.
• 1:31
  SPEAKER_01: I've been covering the pension sector about 15 years.
• 1:34
  SPEAKER_01: I specialise in the institutional side, and by that I mean writing for publications that focus on big pension schemes.
• 1:42
  SPEAKER_01: So I spend a lot of time thinking about what the professional investor wants.
• 1:47
  SPEAKER_01: Perfect.
• 1:48
  SPEAKER_00: Jay.
• 1:49
  SPEAKER_00: Hello, I'm Joy Sharples.
• 1:51
  SPEAKER_00: I'm the Chief Investment Officer for Aeon's DC Solutions.
• 1:55
  SPEAKER_00: I've been in the pensions industry for just over 20 years now, and most recently I've focused on sort of advising and supporting DC pension schemes on all aspects of their investment strategy.
• 2:07
  SPEAKER_02: Fantastic.
• 2:08
  SPEAKER_02: The perfect experts for this podcast.
• 2:10
  SPEAKER_02: So thank you both for taking the time.
• 2:13
  SPEAKER_02: Maybe best that we all kind of get the lay of the land, that we establish exactly the sort of different categories that exist within the UK pensions industry.
• 2:24
  SPEAKER_02: So maybe Charlotte, with that generalist knowledge, you can sort of kick us off and then we'll get into some of the specifics.
• 2:31
  SPEAKER_01: Hi.
• 2:31
  SPEAKER_01: So yes, it's best when you're talking about pensions to have a clear idea of what bit of the pensions landscape we're focusing on.
• 2:39
  SPEAKER_01: And it's fair to say that it's fairly fragmented in the UK.
• 2:43
  SPEAKER_01: The easiest place to probably start is to think about whether your pension is funded or unfunded.
• 2:49
  SPEAKER_01: Now that might sound like a bit of jargon, but it's quite straightforward.
• 2:52
  SPEAKER_01: So if you are a public sector worker, if you're a civil servant or a teacher or fireman, it's highly likely that your pension is, it will be funded out of taxpayer revenue in the future by the government.
• 3:06
  SPEAKER_01: So that's an unfunded pension.
• 3:08
  SPEAKER_01: A funded pension is a completely different beast.
• 3:11
  SPEAKER_01: And that is something that you pay into over time.
• 3:16
  SPEAKER_01: You put money into a pot, and most importantly, your employer also puts money into a pot.
• 3:21
  SPEAKER_01: Now, there are two types of those funded pensions in the UK.
• 3:26
  SPEAKER_01: One is called a defined benefit, and that's usually referred to as a salary scheme because it could be related to your final salary or average salary.
• 3:34
  SPEAKER_01: And those are on the private side, those tend to be legacy schemes.
• 3:39
  SPEAKER_01: That means to say that not that many people still have those types of schemes.
• 3:44
  SPEAKER_01: For most people today who are in the workforce, they will be auto-enrolled into a defined contribution scheme.
• 3:51
  SPEAKER_01: And that means rather than being paid a salary or an income on retirement, you receive a pot with which you then have to go out and use to fund your retirement income.
• 4:01
  SPEAKER_01: So those are the broad categories.
• 4:02
  SPEAKER_01: And floating across the top of all of those is, of course, the state pension, which is paid to people who have accrued enough years, paying in natural national insurance contributions, and that too is paid out of taxpayer revenue.
• 4:14
  SPEAKER_02: What a brilliant explanation.
• 4:15
  SPEAKER_02: I wish earlier in my career I'd let somebody break it down like that, give me that clarity rather than me muddle through.
• 4:23
  SPEAKER_02: And actually, just about point around the legacy point, Joe, you know, the DB schemes are a pretty unique thing here in the UK industry.
• 4:30
  SPEAKER_02: So maybe you could also just give us a bit more of the kind of potted history of how that's evolved.
• 4:35
  SPEAKER_00: Yeah, absolutely.
• 4:36
  SPEAKER_00: And I remember starting work as an actuarial graduate just over 20 years ago.
• 4:41
  SPEAKER_00: And one of the first things I started to do was working with defined benefit pension schemes.
• 4:45
  SPEAKER_00: And I think it was in my first week at work that I realized that these defined benefit pension schemes, which would be my clients, were actually starting to close and it was it was going quite quickly.
• 4:56
  SPEAKER_00: And I remember thinking to myself, my goodness, what have I done?
• 4:59
  SPEAKER_00: This is my first job.
• 5:00
  SPEAKER_00: I'll be looking for another job next year.
• 5:02
  SPEAKER_00: Um, but but thinking back on that, I mean, the the reasons for that is it's really a combination of factors.
• 5:08
  SPEAKER_00: So we we saw increasing life expectancy, so there's been some huge improvements in in how long people expect to live for.
• 5:15
  SPEAKER_00: We've also seen falling interest rates.
• 5:17
  SPEAKER_00: Um, I've got used to in the last couple of years interest rates being around zero, but when I when I started working, they must have been a heady sort of five or six percent.
• 5:25
  SPEAKER_00: And then, of course, on top of that, we've had a lot of change in regulation, which has really toughened up some of the funding requirements for these fees-funded defined benefit schemes.
• 5:34
  SPEAKER_00: And all of that has meant that the cost of providing those pensions has just kept going up and up and up.
• 5:40
  SPEAKER_00: And the result was that employers started to see the contributions they were having to pay increase, both to cover the cost of providing those future benefits, but also to cover the cost of meeting a shortfall.
• 5:51
  SPEAKER_00: And the result of that was that lots of employers decided to close their DB schemes.
• 5:56
  SPEAKER_00: Usually the first step was just to stop providing future benefits and then put in place an alternative, and which is of course the defined contribution schemes that Charlotte referred to earlier.
• 6:06
  SPEAKER_00: And in contrast, of course, the defined contribution scheme offers much more certainty for the employer because the contributions are fixed, they're linked to salaries, so you don't get those surprises down the line.
• 6:17
  SPEAKER_00: Um, but of course, for employees, it's quite different because all employees are now sort of taking that risk and reward.
• 6:23
  SPEAKER_00: Um, so with hindsight, I rather naively thought back then that all these defined benefit schemes might have disappeared, but actually it's taken a little bit longer than that, and I suspect it will take many more years, years to go before they're a thing of the past.
• 6:38
  SPEAKER_02: And actually, when we think about those different schemes, it's I'd love to hear your thoughts on um the kind of the press and the push, I guess, from the UK government with this investment kind of big bang, and so namely trying to encourage institutional investors to to take on more risk and and invest more broadly across UK assets and companies infrastructure.
• 7:00
  SPEAKER_02: And and really what does that mean for each of those schemes?
• 7:04
  SPEAKER_02: And is it difficult and more nuanced from one to the next?
• 7:07
  SPEAKER_02: Um, so maybe Joe if I stayed with you and then Charlotte, maybe to take add anything further.
• 7:13
  SPEAKER_00: Yeah.
• 7:14
  SPEAKER_00: And I mean, I think when it comes to the schemes and how they'll interpret that investment big bang, it's almost worth taking a step back because I think for DB and DP pension schemes, they're often in quite different places when it comes to investment strategy.
• 7:28
  SPEAKER_00: Um so if we take DB schemes to start with, a lot of them are sort of starting to aim for self-sufficiency or buyout, and hence the investment strategies are often quite low risk and tend to be more focused on sort of hedging strategies, fixed income, sort of more defensive assets.
• 7:44
  SPEAKER_00: Now that that's not the case universally, so there are some exceptions to that, but that's been the direction of travel over the last few years.
• 7:51
  SPEAKER_00: And so for DB schemes, I think for some schemes it will be the right thing to do to play a role in that investment big bang, but I think for a lot it may not fit with their direction of travel in that the the assets that they've potentially got to allocate is actually a sort of dwindling pot.
• 8:07
  SPEAKER_00: For DC schemes, though, I think it's quite different.
• 8:10
  SPEAKER_00: And for the strategy, each scheme is investing their members' money on an individual basis, and the strategy will actually depend, or the asset mix will depend where that member is on their journey, which is typically linked to age.
• 8:22
  SPEAKER_00: So, to give you some examples, younger members in a DC scheme will typically be invested mainly in growth assets, so that might be equities or other real assets.
• 8:32
  SPEAKER_00: Older members may well be invested across a mix of different assets.
• 8:36
  SPEAKER_00: But then if if we think about that in the context of where they invest that money, investing in private markets for those younger DC members makes a huge amount of sense because you you've got investment in sort of potentially quite liquid, higher risk assets that can deliver better returns married up with a member's really long-term outlook.
• 8:57
  SPEAKER_00: And for a 20-year-old, they can't access the money for years and years, so it should be a great match.
• 9:02
  SPEAKER_00: I think the challenge is that there are a lot of sort of practical, sort of boring practical issues that need to be addressed to get DC schemes to allocate to those assets in sort of sufficient quantity.
• 9:13
  SPEAKER_00: So just to give you an example, cost is a big consideration.
• 9:16
  SPEAKER_00: Um, we've not only got the charge cap, which puts a limit on charges for DC schemes, but also you've got commercial pressures between different sorts of um providers, and that can make it quite difficult to actually meet the cost of allocating to some of these assets.
• 9:32
  SPEAKER_00: You then got illiquidity, and it shouldn't be an issue, but you've got an environment for a lot of DC schemes that's grown up around being able to provide daily liquidity and do daily trading.
• 9:42
  SPEAKER_00: So actually unraveling all of that and making it sort of friendly for private markets is it needs a bit more work.
• 9:51
  SPEAKER_00: Yeah, absolutely.
• 9:52
  SPEAKER_00: Charlotte, anything anything to add on that?
• 9:55
  SPEAKER_01: Yeah, a couple of points.
• 9:56
  SPEAKER_01: Um, first of all, on the DB schemes, um, Jo's absolutely right in her characterisation of it.
• 10:01
  SPEAKER_01: And I think perhaps an easy way to think of them, because this is a very complex industry to get your head around, is to think of those closed legacy DB schemes as being like insurance companies, and like you would expect with insurance companies, they tend to be much more risk averse.
• 10:16
  SPEAKER_01: And it's not just um, there's also a very strong relationship between those schemes and the regulator.
• 10:23
  SPEAKER_01: And the regulator has changed its attitude towards risk as those schemes have matured.
• 10:29
  SPEAKER_01: So it's not just about persuading a scheme to invest and maybe persuading the investment committee to invest in it and all of the actual that advise them, but it's also about making sure that the regulator is happy with that risk too, because there is an increasing emphasis on the um the role of the sponsoring company that underpins the scheme that has to hand up the cash if everything goes wrong.
• 10:52
  SPEAKER_01: Um, and on the DC side, um that's absolutely correct as again about the cost considerations and all of these um issues around illiquidity and daily dealing and all the rest of it.
• 11:06
  SPEAKER_01: I think probably the longer-term solution, and we are already seeing some of the bigger master trusts begin to challenge these problems and overcome them even, because they have the scale and they can start to negotiate down um better pricing deals for that, and they can have a much broader investment universe, which we should all want to have.
• 11:25
  SPEAKER_01: So I think as the industry matures, and maybe we get away from a lot of small individual schemes and build the master trust into bigger uh funds that can have more bigger scales of economy, that will be a that will be a good push in the future.
• 11:41
  SPEAKER_02: Um lots to lots to sort of pick up on in there and um maybe just to the to the point about the UK regulator.
• 11:47
  SPEAKER_02: I'm kind of curious as your thoughts around with the kind of government's push for these broader mandates more to more entrepreneurial or riskier assets.
• 11:57
  SPEAKER_02: Do you see some kind of tension between kind of the the UK government and the UK regulator, Charlotte?
• 12:04
  SPEAKER_01: Potentially.
• 12:06
  SPEAKER_01: I mean, it depends where the emphasis is put.
• 12:09
  SPEAKER_01: I think as I mentioned, you know, it's about sponsor covenant.
• 12:12
  SPEAKER_01: So I think if it was about ignoring that, that could be a problem.
• 12:15
  SPEAKER_01: And if it's about trying to if there's a mismatch in risk between, say the sponsor covenant is in not in a particularly strong position, which obviously we're going to be post-pandemic, that there could be companies where their credit rating isn't as strong as it was but two years ago, let's say, and then they went for a riskier investment strategy that included, and they wouldn't necessarily do this, but included something like venture capital.
• 12:41
  SPEAKER_01: I'm not saying they would, then that would really run, they would really have problems then with the regulator.
• 12:46
  SPEAKER_01: I mean, Joe would know more about this than this than me, but that's my impression.
• 12:50
  SPEAKER_00: Yeah, I mean, I I agree with all that.
• 12:52
  SPEAKER_00: I think there is that potential tension between the direction the government wants and then the direction that the regulator goes.
• 12:58
  SPEAKER_00: And I just, I mean, I think getting that right balance will be be hugely important.
• 13:02
  SPEAKER_00: And I mean, as Charlotte said, there may well be good reasons why a pension scheme is just not comfortable allocating to this sort of investment and actually just doesn't fit with where they're trying to get to.
• 13:12
  SPEAKER_00: I think, as well, from a government perspective, it's probably, and I think they've done that to some extent in the letter, but try and recognise some of the potential challenges that schemes do face, and that they certainly talked about cost and illiquidity.
• 13:25
  SPEAKER_00: It was interesting they didn't touch on sort of some of the covenant and covenant issues Charlotte's referred to.
• 13:30
  SPEAKER_00: But again, I think if they can make it as easy as possible for schemes to do, that will really help.
• 13:36
  SPEAKER_00: Because I do think there's a danger that some of the schemes will get, even the larger schemes will get, and providers may well get put off if there's a lot of extra risk associated with it, or there's a lot of extra hassle.
• 13:49
  SPEAKER_02: Absolutely.
• 13:50
  SPEAKER_02: Um, and I'm conscious of sort of touching a lot of areas and I'm jumping around a bit, but but just to that point around sort of government being involved in in the pensions industry, um, can what have been the knock-on effects of Osborne's pension reforms and freedom of choice?
• 14:07
  SPEAKER_02: You know, there's this shift of risk and responsibility onto individuals.
• 14:11
  SPEAKER_02: I mean, do we see that as being sustainable?
• 14:15
  SPEAKER_02: And I guess without annuities, are we going to see some other um sort of at retirement products replace them?
• 14:22
  SPEAKER_02: You know, I'd just be really curious as to sort of how you see some of those kind of reforms taking take effect.
• 14:28
  SPEAKER_02: Charlotte, maybe again we can start with you and see where we go.
• 14:31
  SPEAKER_01: Um, yes, I think this is for me, this is the big issue.
• 14:35
  SPEAKER_01: And I feel like I've been writing articles about this ever since the Freedom of Choice reforms came out.
• 14:39
  SPEAKER_01: And, you know, that's the great thing about the pensions industry, in a way, you know, what you write about doesn't really change that much because it's just a life-moving feast.
• 14:47
  SPEAKER_01: But it is a huge, huge question.
• 14:49
  SPEAKER_01: There are some huge questions to be asked about auto-enrollment.
• 14:53
  SPEAKER_01: And as Joe touched on, you know, companies like DC, because it takes the risk away from them and it puts the risk onto the employee.
• 15:03
  SPEAKER_01: And the problem with freedom and choice when you don't have to buy annuity means that you know somebody when they're approaching retirement suddenly has to be an expert at managing investment and longevity risk when they haven't got any skills in that area.
• 15:16
  SPEAKER_01: And I personally think that that is unsustainable and that we will over time see some kind of at retirement solution, or which probably will have an annuity embedded in it somewhere, but we won't ever mention the annuity word because people hate it, and that people will be kind of, we could use a similar system as we have with auto-enrollment and just auto-de-default people into that solution and say, you know, unless you tell us you want to do something else, we're going to put you into this, and you you can at any time, of course, withdraw and do something different.
• 15:49
  SPEAKER_01: So to me, that's a no-brainer, and that's what needs to happen.
• 15:53
  SPEAKER_01: Why it doesn't, I'm not entirely sure.
• 15:56
  SPEAKER_01: I mean, people in the industry have talked about it last, and people in the industry are coming up with different solutions.
• 16:01
  SPEAKER_01: So there's a lot of active thought and engagement within the pension sector, but that doesn't seem that sort of, I think we need the push from a policymaker perspective to make it to make it really happen.
• 16:13
  SPEAKER_00: And I think that the other thing sort of to bring in here is that one of the, I guess, the challenges for providers is actually seeing the volume of people retiring.
• 16:21
  SPEAKER_00: Um, because a lot of DC schemes in particular are relatively immature, so you don't have as many retirees.
• 16:27
  SPEAKER_00: But also a lot of the current retirees at the moment quite often have some sort of defined benefit pension tucked away.
• 16:34
  SPEAKER_00: So actually, for them, taking cash might be the right answer, but also they've always got that fallback of their DB pension, um, which provides a sort of a bit of a safety blanket in many cases.
• 16:44
  SPEAKER_00: But as Charlotte points out, as over time that's going to change, and so we will get to the position where DC is the predominant uh pension benefit for people, and actually that that decision will be hugely important.
• 16:56
  SPEAKER_00: And I I think as we see that we will see the market mature.
• 17:01
  SPEAKER_00: I agree, I think there's a place for annuities, I think they'll get embedded in, um, probably not with the annuity word, um, but I think we'll see some new products development develop, and it it might be ones that have got some sort of guarantee that sort of works in a similar way, or sort of focused income strategies, possibly also possibly even a sort of collective DC arrangement.
• 17:20
  SPEAKER_00: And I know that's been talked about how you could make that work in a sort of post-retirement context.
• 17:25
  SPEAKER_00: So I think there's a lot of ideas out there, and I suspect as we start to see more of the people retire in the bigger pots, there'll be there'll be some really good solutions coming through.
• 17:34
  SPEAKER_02: Sounds like Charlotte, there'll be a lot more to write about going forward.
• 17:37
  SPEAKER_02: Let's hope so.
• 17:38
  SPEAKER_02: Um and Joe, maybe you could share any other thoughts around the sort of challenges and the evolution that you see for DB and DC schemes over the coming, I don't know, sort of five to ten years, something like that.
• 17:50
  SPEAKER_00: Yeah, absolutely.
• 17:51
  SPEAKER_00: So starting with DB schemes, I think a lot of the focus will continue to be on funding and achieving a long-term funding goal.
• 18:00
  SPEAKER_00: And that might be sort of ongoing self-sufficiency for the bigger schemes, but equally it will probably be some sort of form of buy-out or buy-in where you secure the benefits with an insurance company for the sort of smaller to mid-sized schemes.
• 18:14
  SPEAKER_00: Right now, a lot of DB schemes are in quite different places, but I think it's fair to say that probably the majority are working towards that long-term goal.
• 18:22
  SPEAKER_00: And I'm certainly always reading articles about schemes that have secured a buy-in with this insurance company or that insurance company.
• 18:29
  SPEAKER_00: So it's it's definitely that direction of travel.
• 18:32
  SPEAKER_00: With that, um, it will be sort of continued de-risking, I think.
• 18:35
  SPEAKER_00: So it'll be moving assets away from sort of more growth-focused assets to defensive assets.
• 18:40
  SPEAKER_00: So that's probably the biggest challenge is that sort of continued um journey plan for the DB schemes.
• 18:48
  SPEAKER_00: For DC, I do think it's a bit different because you've got that individual element and it's very member dependent in terms of their age and where they are on the journey.
• 18:57
  SPEAKER_00: But one of the biggest challenges I see when we're sort of designing strategies for schemes is actually about return generation.
• 19:04
  SPEAKER_00: Because if we look back over the last sort of 10 years, we've seen some really good returns from equities and from fixed income.
• 19:10
  SPEAKER_00: And actually, you look ahead and think that where do the returns come from next?
• 19:15
  SPEAKER_00: And so for DC schemes, I think one of the challenges actually will be how do they diversify, how do they get other sources of return, which probably then takes us back into that discussion we had earlier about investing in private markets and actually should DC schemes be allocating to things like infrastructure or venture capital to sort of spread the risk and bring in some opportunities?
• 19:35
  SPEAKER_00: Um, and then of course, for both, and you can argue which is more pertinent for which type of scheme, you've then got sustainability issues, and I think that will become a huge um, not necessarily a challenge.
• 19:47
  SPEAKER_00: I think it it poses risks and opportunities for schemes, but I think that will be a huge area of focus in the sort of next decade for all sorts of schemes.
• 19:55
  SPEAKER_02: Absolutely, we've seen that already with the kind of if we look with a broader lens to sort of to Europe, the kind of pension schemes in Europe really being a powerful driver of responsible investing and leading that focus on sustainability.
• 20:08
  SPEAKER_02: Um, so perhaps you could both give a kind of view on how you see that sort of impacting the UK market and perhaps particularly the likes of master trusts.
• 20:20
  SPEAKER_00: Yeah, so I mean, thinking about the UK pension schemes, I mean, certainly in just the last sort of two to three years, I've seen a huge shift in what schemes are doing and also some of the trustee discussions that we're having, a lot more interest in this, a lot more recognition of the risks, and that's certainly reflected in all the activity we're doing with our clients.
• 20:39
  SPEAKER_00: Um, from Master Trust in particular, I think they're they're really well placed to continue to evolve what they're what they're doing here, um, not only because they've got millions of people's retirement savings that they're looking after, but also because they they're getting feedback from members, and members are telling us that they care about all these issues and actually they want to know where their money's invested, and they're asking questions about it.
• 21:02
  SPEAKER_00: And in some cases, they're quite pertinent questions.
• 21:05
  SPEAKER_00: You remember the questions we're getting are much more informed, say, than they were perhaps a couple of years ago.
• 21:11
  SPEAKER_00: And from that, I think that will really drive demand from members to have more responsible investment options in the fund range, um, but also keep the pressure on the big master trust to keep evolving what they're doing, both in terms of the investments, but also how they're communicating and telling people about it.
• 21:28
  SPEAKER_00: Um, and if I if we actually think back over the the last couple of years in terms of what master trusts have been doing, um we've we've certainly seen most of the big providers include some sort of responsible investment focus strategy in their their default fund.
• 21:45
  SPEAKER_00: Um, but also over the last six months, we've seen most of the big providers come out with uh and sort of talk about net zero commitments.
• 21:52
  SPEAKER_00: And so I think the fact that they've they've made those commitments will just in order to actually meet them, they are going to have to keep changing.
• 22:00
  SPEAKER_00: and and keep evolving what they're doing.
• 22:02
  SPEAKER_00: So again, I think that would be a huge driver for change in the industry.
• 22:07
  SPEAKER_02: Very exciting.
• 22:08
  SPEAKER_02: Charlotte, any any thought?
• 22:10
  SPEAKER_02: I feel like you're you're briming to add some thoughts to that.
• 22:13
  SPEAKER_01: I am, I am very much so.
• 22:15
  SPEAKER_01: I mean I think it's a there's a really interesting feedback loop developing now between, you know, this kind of like the asset owners, which you can think of as the scheme members, they're the ultimate asset owners and the pension schemes and the asset managers.
• 22:30
  SPEAKER_01: And certainly kind of the the feedback I've had from some asset managers is a lot of the push from sustained into sustainable investing is actually coming from the pension schemes themselves, who have started to draw up their own sustainable investment investing philosophies and start making quite um demanding demands, shall we say, when it comes to requests for pitches and the like so there is there is it's kind of a circle that's accelerating I feel amongst those three groups and that is a good thing and that's really what's going to accelerate the trend and there's lots of really interesting areas of debate that has to go on within the industry about you know defining their terms.
• 23:09
  SPEAKER_01: We talk about sustainable we talk about responsible what do we mean?
• 23:13
  SPEAKER_01: Is it about risk?
• 23:14
  SPEAKER_01: Is it about impact?
• 23:16
  SPEAKER_01: How far are we prepared to go to change the world?
• 23:18
  SPEAKER_01: Are we prepared to accept lower returns?
• 23:21
  SPEAKER_01: What are we going to do with all these passive investing investments?
• 23:25
  SPEAKER_01: How are we going to engage effectively with these companies when you've got huge indices with over a thousand constituent companies there's lots of areas that are really fascinating and that are really gaining traction and I get the feeling that there's sort of a mounting frustration within the industry with policymakers.
• 23:45
  SPEAKER_01: There's a feeling that the industry is kind of like doing what it should do and it's going great guns ahead and regulators are playing their part, particularly in Europe where they've really tried to get ahead of the whole issue and start thinking about what we actually have to do to achieve meaningful climate change.
• 24:01
  SPEAKER_01: But a lot of the other policymakers are behind.
• 24:04
  SPEAKER_01: And there can also be I think frustration with some of the asset managers because they're not clear enough in their terms.
• 24:10
  SPEAKER_01: So that probably is something that we all need to think about.
• 24:14
  SPEAKER_02: Which actually takes me beautifully to the kind of thinking about communication Jo, you mentioned it and this sort of consistency in terms of the kind of the language that we use.
• 24:23
  SPEAKER_02: I wonder Charlotte whether you could give your thoughts um on how you think and recognizing the audience today, you know, marketers of these institutional houses can do a better job of communicating with the gatekeepers of the big pension schemes and really showcasing their credentials, capabilities, you know, sustainability kind of within their businesses how could they do a better job of that?
• 24:49
  SPEAKER_01: Well I think in the asset management industry at the moment it sort of falls into two camps really maybe there's the third that I'm not aware of but there are those asset managers that take sustainable investing very very seriously that is the hill they are prepared to die on and they build their entire portfolio strategies around sustainable investing and there's probably about seven asset managers that come to mind in that in that very sort of highly focused and concentrated you know little mini universe.
• 25:15
  SPEAKER_01: And then the rest of the industry you've got sort of it's probably spread out you've got a lot of generalists and you've got the the bigger the asset manager with the broader the number of funds the bigger the issue is and there is a sort of sense that maybe what you're trying to do is retrofit sustainable investing into a more standard business model.
• 25:33
  SPEAKER_01: So you know I have a lot of sympathy for marketeers dealing in that latter category because I think there can be a lot of confusion internally about what they mean.
• 25:42
  SPEAKER_01: But I think that from marketeers perspective and it's easy for me to sit here and say this but you know what we really what you really need to do is sit down and take your blank sheet of paper and go sustainable investing what does it mean to us and think about you know what are we offering our clients where are we on the responsible investing sustainable investing impact what's our engagement strategy what kind of resource are we committing to it really having a big discussion about that and then thinking about once you've decided what it is, thinking about how you're going to communicate that in a really consistent manner so that no matter who touches the asset manager, whether it's a portfolio manager going in for a beauty parade or a piece of marketing literature that you're getting the same message over and over again like a political campaign.
• 26:31
  SPEAKER_02: You're seeing we're seeing from the same song sheet there, Charlotte.
• 26:35
  SPEAKER_02: I'm just curious Joe as the audience for a lot of these marketers and asset managers is that are you getting confused messaging or or are you seeing increasing clarity on companies purpose, vision, commitment to sustainability?
• 26:50
  SPEAKER_00: I think it probably varies quite a lot depending on on who you're you're speaking to and which investment manager.
• 26:56
  SPEAKER_00: Some of them as Charlotte says are really clear and that is that their whole purpose in life others of them you do get the impression it has been a little bit retrofitted but I think it it is definitely improving.
• 27:07
  SPEAKER_00: Probably on a slight slant of that what what I would add about actually how how they they go about it is I think with with lockdowns of course we've all gone virtual and there's been a tendency to have lots of sort of virtual events which have been great in many ways but I I always also think it's highlighted the importance of the personal touch and it's not just about glossy brochures and glossy messaging it's also about building relationships so your sort of gatekeepers your your asset owners actually know what you're like to work with what you stand for how easy you are to deal with so it's probably a bit broader than that that sustainability theme.
• 27:45
  SPEAKER_00: And I think it's worth all of the asset managers if they're serious on this to take the time to talk to talk to their gatekeepers and work out what it is they want from them what problems they've got to solve and actually what they'd like to see as well because I think the more they can do that the the the better relationships they'll build.
• 28:01
  SPEAKER_02: Brilliant brilliant and I mean I'm curious as to whether you recognise that maybe there is a tendency to overcomplicate things to sort of um think about you know how we need to talk in a different way to the institutional market to sort of the wider perhaps wholesale market and think that we have to have much more sophisticated tone or positioning.
• 28:29
  SPEAKER_02: And actually kind of I guess running contrary to that is we hear increasingly that there is kind of much more of a sort of merging between institutional wholesale and um that a good strong consistent positioning kind of regardless of your audience if you can be very focused about what that is that that that's the way to sort of get cut through.
• 28:49
  SPEAKER_02: I wonder whether Charlotte you've got some thoughts there and and Jo afterwards.
• 28:54
  SPEAKER_01: Yeah I mean the I've as I said at the beginning I've written for institutional publications my entire life so you would think that I've always written in you know the most highfalutin technical term but not the whilst I kind of like assume a certain level of knowledge that I wouldn't do if I was talking to a retail market, I'm always well aware that actually the target audience is a lay trustee and a lay trustee shouldn't be any different to really the man in the street and I guess the sort of sort of number one driving ethos of a of a journalist is to always explain things in a way that anybody could understand, which is not the same as dumbing down.
• 29:30
  SPEAKER_01: It's about being clear and concise.
• 29:32
  SPEAKER_01: And I think the asset management industry can love to wrap itself up in ill-defined jargon in this kind of like quest of seeming clever I think that anything you can do as a marketeer to to fight against that tendency and to just try and be clear and concise and just avoid jargon even things like active share for example which I have to keep reminding myself what it means it means not being not hugging the benchmark.
• 30:01
  SPEAKER_01: But it's not obvious to anybody who isn't in that industry what it means.
• 30:05
  SPEAKER_01: And so just as an example for term that's something that shouldn't appear anywhere on a website or in a discussion or anything you should just you know it should be replaced with we have the conviction of our beliefs and we don't care what the benchmark does.
• 30:19
  SPEAKER_01: I mean that's all it should be so there's a I think there's always this kind of like a common sense sanity test to be done.
• 30:26
  SPEAKER_00: Yeah and I think one of the the big challenges around investment is it it can be quite technical when you start sort of talking between investment professionals and there's a lot of sort of acronyms and and terminology.
• 30:37
  SPEAKER_00: It can be quite dry as well to the outside audience I shouldn't really really say that.
• 30:41
  SPEAKER_00: But the other thing I I think I've seen from sort of speaking to investment professionals is that that they know so much and there's a tendency to tell sort of non-investment people all the wonderful things that they know and actually there's there's a bit of a knack in terms of taking a step back and actually thinking what's actually going to be interesting and relevant to this these people and how can I as Charlotte says explain it in a way that that anyone can understand.
• 31:06
  SPEAKER_00: Personally I think if they can share case studies that's really good because that helps bring it to life it kind of takes you away from some of the the the jargon and actually makes it feel a bit more tangible and real.
• 31:17
  SPEAKER_00: So I'm a big fan of case studies where those those can be used.
• 31:20
  SPEAKER_02: That is a really really good tip for those listening and I just wondered um whether as we think about wrapping this up we've we've gone through all this at quite a lick and just thinking what I might have missed and and you know you know clearly we can't catch everything in in half an hour but um if there's anything you feel in terms of really giving a good basis of understanding or or how to do a better job in terms of really being focused and targeted of what you're trying to say and how you say it.
• 31:52
  SPEAKER_02: I'd love any kind of final thoughts uh for for marketers listening today.
• 31:56
  SPEAKER_02: So um we've got one from Joe already maybe we come to you Charlotte and give the final word to Joe if there's anything else remaining.
• 32:03
  SPEAKER_01: I think it's important not to be intimidated.
• 32:05
  SPEAKER_01: I mean asset managers there's there are it's a very peculiar business model.
• 32:10
  SPEAKER_01: It's not really like anything else.
• 32:13
  SPEAKER_01: It's kind of you know you create a product which is an investment product and you get a you know a team of clever people running that particular product and they become sort of demigods really.
• 32:23
  SPEAKER_01: And I think there's a danger sometimes that all of the ancillary services around asset managers whether it's marketing or PR or compliance are all slightly sort of second class citizens to that.
• 32:33
  SPEAKER_01: And I think you would just have to be ballsy and challenge that and not be pushed into subservience and go, listen, you've paid me for me to be able to sell your product in a convincing way and that's what I'm going to do.
• 32:47
  SPEAKER_01: And you know I'm going to challenge you when I think that you are wrong because you may be right about how you manage your portfolio but I think I'm better positioned to be able to know how to sell this.
• 32:59
  SPEAKER_01: And I I have seen that internally in meetings I've been that sometimes I get brought in as an outsourced person because I can be the bullshy blonde because I can stand there and go, no no no you're not right so I think there needs to be a kind of a you know just a greater and within asset managers they need their ancillary services and they need good markers and good PRs and all of those other support services and good salespeople and good distribution we otherwise they don't have a business and I think there has been um a tendency not to recognize that but that the the marketplace is so increasingly competitive that that you that just can't exist anymore.
• 33:39
  SPEAKER_01: You need to be looking at the really big aggressive consumer brands for sort of for insights on how they do things how they you know how much emphasis they put on marketing and advertising for example you know a fast moving consumer goods company or a supermarket they would those departments are equally important and I think that's that's something that you need to fight for.
• 33:59
  SPEAKER_01: Brilliant.
• 34:00
  SPEAKER_00: And I think just the other bit to add which probably isn't as exciting as a Charlotte's point is just to to remember your your audience and think about those relationships but also think about how um different people like to consume some of that information and again certainly for me with lockdown it's really brought it out but having um lots of sort of WebExes and and stuff online at the at the sort of press of a click of a button has been fantastic but also I miss the personal touch and certainly I know I like to read things as well as listen to video.
• 34:29
  SPEAKER_00: So I think having that mix of content and and that relationship bit as well is will be hugely important going forward just to kind of increase the improve the effectiveness of their messages and get it across to as many people as they can.
• 34:43
  SPEAKER_02: Fantastic.
• 34:43
  SPEAKER_02: So that kind of really kind of ends with a bit of a hurrah really in terms of the integrated sort of marketing approach as well as to your point Charlotte around um having more confidence and that's all you know this podcast is really built to do is give people the understanding a bit more knowledge that they can uh sort of step into that room and challenge with a um a bit more uh firepower I guess um kind of knowing that they're backed with the kind of understanding now of the the UK pension industry so thank you both so much for for taking the time today uh share your thoughts experience and expertise it's really been fantastic to talk to you both thank you thank you you're very welcome thank you