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High-speed information for a changing investment world

The way we make our investment decisions will need to change radically if we are to take the Myners recommendations on board. The launch of this ground-breaking new service can help us do just that, says Dr Ann Robinson.

It was not always so. Thirty years ago, the world's stock markets were largely dominated by individual investors. Since then, insurance companies and pension funds have replaced them: an ageing population has increased the weight of funds built up to provide for retirement income.

When the idea of pre-funding retirement income was first developed, assets were kept in ‘safe' harbours, such as government bonds and a few blue chip equities. It was in the UK in the early years after World War II that funds began to move into equities in a large way. For as long as actuaries have been able to calculate, there have been superior returns to be gained from equity investment. Safe but expensive has been replaced by safe but more cost-effective investment.

Herding instincts
But institutional investors have matured into large organisations that have largely copied each other's investment behaviour. They have ‘herded' and more recently have found easy, and apparently the most cost effective, investment by following stock market indices. ‘Alternative' investments, such as property (once very widespread) and private equity, have proved less popular with the large institutions. Yet, if the trustees of pension funds and the boards of insurance companies are to serve those whose assets they manage they need to take a broad look at all the possible investment prospects - including ‘alternatives'.

Fears that institutional investors were less than rational in the way they went about their investment decisions, and concerns that they followed the herd towards what appeared to be safe investments led to the establishment in 2000 of the Myners Review of Institutional Investment in the UK. It reported just before the 2001 Budget and the Chancellor of the Exchequer announced in his Budget speech that he had accepted all the review's recommendations made.

Everyone concerned with pension fund investment decision-making needs to take the recommendations seriously and to act upon them. The Review carried a sting in its tail - the threat of legislation if it cannot be demonstrated within two years that trustees, fund managers and investment advisers have changed their established patterns of behaviour.

The post-Myners world
However, the essence of the action required is in the ‘Myners Principles'. These act as a code of good practice similar in nature to the Codes of Good Practice for companies that now form a requirement of stock exchange listing in the UK. The principles drive boards and trustees towards greater rationality in decision-making. They need to spend sufficient time, acquire sufficient expertise and consider sufficient alternatives to ensure that effective decisions are made. Expertise may be acquired by using investment committees. Decisions should focus on asset allocation. There are also requirements for more transparency and reporting to scheme members and customers through a strengthened, and widely available, statement of investment principles. Boards that follow the Myners Principles will need to consider all types of asset, including private equity, and to demonstrate to their members why they have, or have not, invested in any particular type of asset. The focus in the new, post-Myners world is on adequate information, careful consideration of different opportunities, and transparency of the process. It will no longer be good enough merely to follow the herd - decisions need to reflect the real specific needs of the particular fund.

The launch of AltAssets, in the post-Myners world, is extremely timely. AltAssets provides a cutting edge, easy-to-use system that gives visitors access to all the information they need on private equity investments. Secretaries to boards of trustees should use it, as should investment committee members and all trustees individually. It can be used at any level to suit a particular decision-maker's needs. With AltAssets at your fingertips, you are well placed to take your decisions on Myners principles and thereby better serve your scheme members. I was enthusiastic about the concept when I first heard about it nearly a year ago - I'm even more enthusiastic now that I have seen the reality.

Dr Ann Robinson is a non-executive director of Almeida Capital and a pension fund trustee. Until 2000 she was director general of the National Association of Pension Funds and before that was head of the Policy Unit at the Institute of Directors.