Corporate governance and socially responsible investment (SRI) were the main points of discussion at last month’s Local Authority Pension Fund (LAPF) conference on investment and responsible ownership.
Addressing the conference, Jeff Rooker, minister of state at the Department of Social Security, said members had to ask local authorities where their money was being invested “because, at the end of the day, it’s their wages”. He added: “It is important for scheme members to know how their pensions work, what they can do to improve their situation and if they can go somewhere else to get a better deal,” he said.
“That would be enormously beneficial for the education of the population and also for the performance of the pension industry.” He believed pension managers and trustees were convinced of the importance of responsible investing and that this could be reflected in July, when funds will be required to identify their approach to SRI policies in their statement of investment principles. Rooker added: “Many trustees looking at their portfolio would find they are already investing in areas where they are applying SRI criteria. “Alan MacDougall, managing director of London-based Pension & Research Consultants (PIRC), told the conference: “The interest in SRI has grown in parallel with the growth of institutional investment. Investors’ driving forces have been very much pushing them towards the adoption of SRI strategies or at least coming to terms with these issues.”
Institutional investors are becoming ‘credible monitors’ in creating a legal framework through their SIP statement, building policy consensus among fund ‘stakeholders’ and building alliances with other funds. “Every local authority fund and every fund manager is facing these changes in regulation,” he said.
MacDougall added: “I don’t think that we will be able to discuss issues of socially responsible investment for much longer without coming to terms with how institutional investors operate in relation to their beneficiaries. The role of institutional investors is becoming more profound because share ownership brings responsibility.”
He also defined the transparency and accountability questions as “the dominant issues going into this century”. On much the same line, Frank Curtiss, special projects officer at RAILPEN Investments, the investment arm of the Railways pension scheme, said that accountability and business prosperity were not mutually exclusive.
“Good corporate governance should provide effective checks and balances,” he added. “Pension fund boards should include a balance of executive and non-executive directors and appointments should be formal and transparent.”
Looking at pension costs, Roy Wilson, vice-chairman of North Yorkshire County Council, told the conference: “Pensions administrators are aware of the importance of being cost effective. There are significant differences in per capita costs, and that is something pension managers have to deal with.
Wilson underlined the need for independent sources of advice for fund managers and the importance of a good internal investment team because “there is no evidence that external managers provide better returns”.
Terry Crossley, head of the Department of the Environment, Transport and the Region’s local government pension division told delegates: “In funded pension schemes you have to think about the past and make projections for the future. You have to guarantee pensions for future scheme members.” He added that local authorities were responsible for their pension funds and their performance as well as having the duty to improve the relation with their members.
To achieve ‘Best Value’, funds have to be specific in their objectives and provide accurate information to their members, according to Robin Stonebridge, member of the South Yorkshire Pensions Authority. “The information provided by different departments within the same organisation is often inconsistent,” he said.
He added: “Sometimes staff members are poorly trained and don’t have a good knowledge of their own organisation. There is also a minimal use of new technology and difficulties in reaching people, particularly those living in rural areas.”
To obtain Best Value, schemes had to know their stakeholders and define what they wanted to achieve, he said. “It is also a good idea to learn from others engaged in Best Value. This is always an intelligent imitation.”
Calling for a change in attitude, Peter Butler, chief executive of Hermes Lens Asset Management, pointed out: “Pension funds are not just investors. They are part-owners of the companies. Shareholders should not try to micro-manage companies. Shareholder activism is about improving the quality of companies and realising shareholder value.” Paula Garrido

Topics