NAPF Chairman Ruston Smith's opening speech at NAPF Investment Conference 2014 in Edinburgh
Good afternoon everyone - and welcome to the 2014 NAPF Investment Conference.
As always, it’s great to see so many of you here in Edinburgh.
This year we have almost 800 delegates representing over 130 pension funds – and over 300 business members.
That’s a new Investment Conference record!
Just to put this conference into context. The pensions industry is worth two trillion pounds.
And the people in this room represent a big proportion of that total.
So together we have a powerful and important voice - with the ability to make a real difference to millions of individuals.
And in fulfilling that important role, it’s also clear that this really is the place for the industry to network and share knowledge on pension investment.
And – dare I say it – to find time to enjoy a few glasses of wine.
I’d like to say a big thank you to all our sponsors and exhibitors – who’ve done a brilliant job in supporting this conference.
And, of course, thank you all very much for coming - with a record attendance – this conference really should be - the best ever.
We’ve developed a full and fascinating agenda for you – and we’ll hear from some well known speakers who’ll no doubt challenge our thinking - and stimulate debate.
And tomorrow night we’re delighted that Hugh Dennis – the well known comedian – will join us as our guest at the Gala Dinner.
So if the pick up in the economy doesn’t make us smile – he certainly will.
And to continue our crusade to improve knowledge and junk the jargon - we’ll be launching a new ‘made simple’ guide on benchmarks.
Now to kick off the conference - and get you thinking and sharing your views – I’ve a question for you.
Hopefully you’ll have downloaded the conference app.
And for those that have - please tap ‘Live Voting’ – and you’ll see the question I’d like to ask:
Can England really win the Six Nations…..
No really…
What are you most worried about?
And you can choose
- Inflation
- European Deflation
- Ukraine
- China
- Surviving the Gala dinner
So vote now!
If you haven’t downloaded the app and you need help – instructions can be found inside the front cover of your conference guide.
This year we’ve improved the app with the ability to give live feedback during sessions.
So let’s see the results:
We’ll be running the same question throughout the conference – and you’ll find it in the opinion poll section of the app.
And on Friday we’ll ask the question again – for those that do survive the Gala Dinner.
And there’ll be more interactive questions during the conference.
So – contrary to what your husband, wife, partner or mother might say – don’t put your phone down.
But no playing Flappy Bird - ok?
Over the next couple of days we’ll be talking about Intelligent Investing - and how it helps in ‘securing the future of pensions’.
What does that mean?
For me, it means three things:
Understanding the broader economic and social environment in which we – as pensions and investment professionals – are working.
Being clear on the objective we need to deliver
And then making sure we have the capability and tools - to really deliver in that environment.
But I’d add a fourth.
To do the very best we can, working creatively and collaboratively - to drive positive change – and make the difference we need to see.
We’ll be hearing others’ views on this during the conference.
In recent years you’ll have been to NAPF conferences and heard about the economy.
The language will have been about austerity, uncertainty, volatility.
And I’ve no doubt you’ll continue to hear those words - over the next few days.
But despite that, things are finally looking up.
The IMF’s latest forecast points to a global GDP growth rate of 3.7% for 2014 - relative to a 3% growth rate for 2013.
Within the G7 economies, this year the US will lead the way - with its growth expected to reach 2.8%.
The Eurozone economy is also showing increasing signs of recovery.
Slowly but surely, Europe is expected to pull itself out of recession.
The latest IMF forecast points to a modest 1% growth rate for the Eurozone this year.
But it’s growth – and not the decline we’ve seen in recent years.
The UK is also looking good. Overall the economy grew at 1.9% in 2013 - and the IMF predicts growth to accelerate to around 2.4% this year.
Unemployment is at 7.2% and has fallen so fast Mark Carney has had to rethink – or as he called it ‘evolve’ – his forward guidance on interest rates.
And in the retail industry, the void rate or number of vacant shops - is at its lowest for four years.
Getting more people into work - increasing the amount they have to spend - providing more choice on the high street and online – provides a clear sign that we’re starting to turn the corner.
But should we remain concerned?
Global growth isn’t even - in fact it’s slowing in China while central banks in Turkey, South Africa and Argentina have had to control currency - and raise interest rates.
Another key question is what impact the unrest in Ukraine will have – and for how long?
And the Eurozone may be recovering - but it’s still in a critical state.
So we have to remain cautiously alert.
There’s also the issue of Quantitative Easing.
It’s an unconventional policy - and for me - it has symbolised the challenges that pension funds have faced during an unconventional five years.
It’s had a massive impact on liabilities - and on our investment returns.
In the US - the Federal Reserve is tapering it.
That’s tapering – not unwinding – which means its only slowing the rate of its asset purchases. The tap is still dripping.
And where the US goes - the UK tends to follow. Although the Bank of England is on hold at the moment – with unwinding on the horizon.
But we need to prepare for this - because however good it may prove for defined benefit deficits – or at least the perceived scale of them – I don’t expect an easy ride.
That’s why the NAPF is talking to the Bank, the Treasury and the Debt Management Office - about what happens next.
We don’t want massive volatility - and we don’t want chaotic financial markets.
Alongside continuing economic changes - we also have to consider - changes to our society.
In 1960, when defined benefit pension schemes had 8 million employed members - a 40 year old man would look forward to retiring at the age of 65 - and then living to the age of 74.
Now, he can expect to live to 86 - so his retirement doubles.
And the proportion of people in retirement continues to rise at a much faster rate than the number of those working.
Equally, the proportion of people choosing to work longer - rather than retiring - also continues to increase.
As a consequence, youth unemployment is at almost 20%, compared with 14% in 2007.
And increases in the State Pension Age - whilst necessary - only contribute to the problem.
An ageing population creates challenges right across our society. And we haven’t even considered the real impact of how these demographic changes - will really affect the global economy – and long term returns.
Another continuing development – as defined benefit schemes continue to mature – is the increase in de-risking – and the demand this places on long-dated inflation linked - Government bonds.
According to the Purple Book, defined benefit schemes have increased their allocation to gilts and fixed income assets from 20% to 45% - in just the last five years – despite historically low yields.
Even where equity markets rally, schemes continue to de-risk. So we need Government to issue more long-term index-linked debt.
The demand is there - and it needs to be matched with supply.
And, as schemes increasingly revalue future pensions by the Consumer Price Index, we’re also exploring the extent to which pension funds need CPI-linkers.
And, as part of our Budget submission, we’ve asked the Government that they - and the Debt Management Office – consider how to respond to these needs.
Now as well as index-linked gilts – another good asset for meeting inflation-linked liabilities – is infrastructure.
As you know, the NAPF has been working with a group of the larger pension funds - to create the Pensions Infrastructure Platform.
Last month we were pleased to announce that the PIP - as we affectionately call it - has reached its first close.
Five funds have invested in the PIP equity fund managed by Dalmore Capital - which will invest it in Public Private Partnerships like schools, hospitals and energy projects.
And more will follow.
BUT a key learning is that Government needs to help us more with issues like regulatory approvals - and making sure pension funds have a visible pipeline of assets and instruments to invest in.
And talking about regulatory stuff - equipping pension funds to thrive - depends on the right regulation.
For pension funds as investors, Europe continues to be a source of real concern.
The NAPF continues to fight against the Financial Transaction Tax – where, annually, it’s expected to raise around 35 billion Euro across the EU.
But working together, the NAPF, the UK government and the industry pushed back the FTT with a successful legal challenge.
But it’s still on course to be delivered - and to damage investments of pension savers.
When will the EU learn to think longer term – and in the interests of the majority not the minority.
And together, the NAPF - the industry and the Government – scored another significant victory against the European Commission – this time with the Holistic Balance Sheet.
But it’s still looming. EIOPA plans five consultations later this year – needing more work – and more robust and rational challenge.
We also have an earlier consultation on the Governance and Communications requirements of the IORP Directive.
We’re concerned about the new ‘Risk Evaluation for Pensions’ - and a mandatory – EU wide two-page - ‘Pension Benefit Statement’ for members.
The European Commission continues to come up with ideas that fail to address the real priorities.
Because the real issue across the EU – is the 60% of those not making any pension savings at all – which continues to remain unaddressed.
So we must continue to be united – and fight for what is right for savers.
To fight for regulation that incentivises - not disincentivises long term pension saving and investment.
At our last Annual Conference, my distinguished predecessor as Chairman of the NAPF, Mark Hyde Harrison, talked about our Stewardship Disclosure Framework – and its relevance to asset owners.
The framework is important because it gives pension funds an insight - into how managers use their voting rights – to actively influence our longer term returns.
In just the four months since we launched the Framework – 57 asset managers – representing over £13 trillion of assets under management - have already signed up - or are signing up.
They’ve taken the opportunity to outline the approach they take – and gives their pension fund clients the reassurance they look for.
It provides them with confidence that their assets are being managed in the very best interests of their members.
Unfortunately there remain 15 of the largest 50 funds who are yet to respond - which, surprisingly, include names you’d really expect to see.
The report will be published during the conference – so you can see for yourself.
This is really important - so I’d urge the remaining few – to sign up and show our members – your clients – what a great job you’re really doing.
And you’ll be following the example of our first guest speaker Larry Fink - whose firm - BlackRock has risen to our challenge.
They've acted on our request for more transparency around the approach to stewardship - enabling customers to better decide where to invest their money.
Just before I hand over to our CEO, Joanne Segars - to introduce Larry – I just wanted to say a few final words.
Our industry really matters to our economy, to pension savers and, as asset owners - to improving behaviours of corporate responsibility.
As I said at the start, together we have a powerful voice – and together we have the ability to use our scale for good.
So, together, let’s create a legacy that we can all be really proud of - to provide a better future – and really make a difference to people’s lives.
All that’s left for me to say is - have a great conference – and I look forward to speaking to you over the next few days.
Thank you.