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Investment Consultant of the Year
Most of the senior people at Bfinance have joined the company from being investment managers, an experience they say helps them advise clients successfully. Bfinance says 94% of the products its team recommended to their clients beat their respective benchmarks over five years, 83% over three years and 55% over one year – the latter being lower because the investment term is invariably longer. In the past three years, clients’ investments outperformed their benchmark indices by more than 5.8%. Bfinance, which does not sell investments, has expanded its business further into multi-asset credit and emerging market corporate advisory. It also started municipal investment searches for European clients, despite this not being part of their usual investment universe. In 2015, Bfinance was the first investment consultant advising on a collaboration of seven UK local government pension schemes on a £6.5 billion investment. The investment was completed in just five months, with Bfinance having negotiated fee savings of more than 50% on a range of passive equity, passive fixed income and smart beta strategies.
Hymans Robertson advised on 12 risk transfer transactions involving nearly £3 billion of liabilities in the past year. It had a 90% conversion rate, comfortably beating the industry average of 50%. The average cost of a failed buy-in amounts to £50,000 and that of a failed longevity swap to £200,000, illustrating how important this is for clients to avoid costly and missed opportunities. Among those that Hymans Robertson successfully advised were a £600 million longevity swap for RAC (2003) Pension Scheme and a £2 billion longevity swap for the ScottishPower Pension Scheme. It has also seen more interest in medically underwritten transactions, and advised the £200 million Institute of Chartered Accountants Staff Pensions Fund on their second medically underwritten buy-in – a £30 million transaction with partnership. Following this second buy-in, the pension fund has become one of the few in the UK that have completed two such transactions in a market that is only in its third year. In 2015, it also further built out its asset backing cash flow approach to help schemes being able to pay members’ benefits in time. Hymans Robertson does not sell products and does not take delegated responsibility, instead focusing on independent advice.
LCP says its longstanding clients saw their investments outperform the WM All Funds, a pension industry benchmark, by 6% in every rolling five-year period between January 2007 and March 2016. In the same time, the risk in their portfolios was between 8% and 12% lower. LCP does not sell products, thereby avoiding the conflicts that fiduciary management can bring. Managing risk is a focus and its clients are only encouraged to take risks they believe will be rewarded. With this approach, it has won new business this year from the High Commission of Canada to the UK and the pension scheme of the Guide Dogs for the Blind Association, a charity. The consultancy developed LCP Life Analytics during 2015, intended to help its clients with longevity risk. Other recent technology innovations include LCP Horizon, a tool for defined contribution schemes to help with governance, communications as well as LCP Spotlight, which allows the team to answer questions from clients in real time.
Mercer is the world’s largest investment consultancy, advising more than 2,600 pension funds, foundations, endowments and other investors globally with a combined $9.1 trillion of assets. In Europe and especially the UK, the firm says its pension fund clients are becoming increasingly “cash flow negative” and as a result Mercer has begun advising them to create “cash flow driven investment” strategies, consisting of tailored portfolios of credit and illiquid assets, all aimed at generating cash to pay pensions. Mercer implemented the first of these with a client in June 2015, and says that in the past year the fund’s solvency level has declined slightly from roughly 98% to 96%, while according to Mercer’s estimates, the fund’s previous strategy would have seen its solvency drop to around 87%. Meanwhile its manager-picks (those asset managers that the consultancy rates “A”) have outperformed their benchmarks by 1.4% a year, on average, since they were initially judged as an A-rated manager through to the end of March 2016. The firm has also set great store by its climate-change study, “Investing in a Time of Climate Change”, launched in June 2015 and endorsed by Prince Charles, amongst others.
Brexit was a blow to most pension schemes, but Redington says clients that took up its advice have seen strong post-Brexit performance because of a high level of interest rate and inflation hedging – their liabilities have not increased since the referendum. There was even one client who has seen a derisking trigger set off because their funding level improved. Redington calculates that a client with a 72% funding level in March 2013 would have seen its funding level improved to 79% by February 2016, while the average UK pension fund tracked by the Pension Protection Fund 7800 Index declined by 4%.