The weather gods do so love to toy with us: they give us the heat in September we should have had in August. It was so warm at this month’s Headline Money awards that pre-dinner drinks were held outside. I felt beyond excited to attend my first large event for 18 months and everyone else’s sense of joy of being together again was palpable. My article on the UK’s pension risk transfer market for IPE was also published this month. A discussion with Justin Welby on BBC’s Today program prompted me to pen this post looking at whether schemes should exclude or engage with companies which have less than perfect sustainability characteristics. And even though I took a break from the monthly newsletter last month, I did write about the government’s call for an ‘investment big bang’ from pension schemes.

Risk transfer: A story of pent-up demand

While the pandemic and triennial valuations slowed the pace of buy-ins and buy-outs over the past few years, this article explains volumes are expected to be high in 2022 as schemes benefit from strong hedging and good asset performance. The longevity swap market has, however, remained robust this year as schemes in good positions decided to reduce this risk. The pandemic has made trustees realise longevity risk can be unpredictable and so are motivated to reduce it. Schemes are increasingly using deals as stepping stones – entering into a longevity swap then switching it into a buy-in then moving towards a buy-out – as they aim to reduce risks.

Exclude or engage?

Investors face a choice when faced with a company with less than perfect sustainability characteristics – they can exclude it from their portfolio or they can choose to invest and work with management to change corporate behaviour. This piece explains how the debate over which action is more appropriate has raged for decades but become more nuanced in recent years. While most large asset owners will exclude weapons manufacturers and tobacco, many have invested in oil and gas majors. By working together through Climate Action 100+, investors were able to persuade BP to adopt net zero targets by 2050. With no skin in the game through share ownership, such change would not be possible.

The government’s new piggy bank

Over the summer the government called for asset owners to participate in ‘an investment big bang’ to provide capital for economic growth and the ‘levelling up’ agenda. The chancellor and the prime minister want auto-enrolled pension schemes to consider investing in venture capital and infrastructure to fuel this growth. In this post I explore how high costs of these types of assets could be a problem and that the government doesn’t seem to recognise master trusts compete for market share on price. Nor does it acknowledge the challenge of investing in infrastructure – there is plenty of demand but often insufficient supply.

Sustainable investing

My work on sustainable investing continues with plans for blog posts in coming months as well as continued conversations with asset managers to discuss how they embed the best sustainable practices into their business. If you would like to chat, do get in touch!

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