PLSA IC: Trustees urged to consider opportunities of future ‘deep water waves’

Pension scheme trustees have been encouraged to consider the potential investment opportunities that future ‘deep water waves’ could present and to “ask questions” of their investment managers on these issues.

Speaking at the PLSA Investment Conference 2022, Franklin Templeton investment strategist, Kim Catechis, identified demographic considerations around an ageing population as the first wave for pension scheme trustees to consider.

Catechis pointed out whilst 28.9 per cent of the EU population is classed as not economically active, including those who are retired and children, this is expected to grow to 49 per cent in 20 years’ time, and could present a number of challenges.

In addition to this, Catechis highlighted the use of technology as a “second very powerful wave”.

“It’s going to be a massive wave of investment in all aspects of technology, because this is one way that you can actually combat that drift downwards in terms of size of labour force, and at the same time give yourself a productivity boost,” he said.

Adding to this, PTL managing director, Richard Butcher, warned trustees not to be “misled” into assuming that the market will look after the impact of these waves, emphasising that pension schemes are different from other investors, because of their long-term horizon.

“The market can be efficient, but it is not efficient when it’s thinking about these long-term deep water waves,” he explained.

However, he emphasised that it is “not just about the threats” that these waves could pose, but also about the opportunities, urging trustees to “think more broadly than just the downside”.

For instance, Butcher noted that, with an ageing population, fewer manufacturers of pogo sticks and adventure holidays will be needed, whilst more manufacturers of stair lifts and surgical stockings could be.

He continued: “We need to look at the risks and opportunities that exist in and around our investment portfolios, and start thinking about how we can mitigate these risks and how we can capitalise on the opportunities.”

Whilst Butcher acknowledged that pension scheme trustees “can get a bit scared” when faced with these deep water waves, they do not have to have “all the answers”.

“The reassurance is, as a fiduciary, I don’t have to have all the answers, all I’ve got to know is to ask the questions, to get in front of my managers or consultants and ask what are they doing about this stuff,” he said.

Butcher suggested that trustees add a session to their next trustee meeting to ask investment consultants and managers what they are doing to maximise the opportunities, and what are they doing to minimise the risks of these waves, suggesting that Catechis’ list waves, which also included climate change and geopolitics, would be a good starting point for this.

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