Our recent research highlighted that despite volatile economic conditions, trustees’ appetite for risk has increased over the last year.
Head of Fiduciary Management Bob Campion sits down with Erica Whyte to discuss what's behind this increase in risk appetite and explains why schemes without a set funding target are more likely to make risky investment decisions.
Read the transcription below:
Our recently published report titled The Planning Puzzle Challenges Professional trustee's Face Today highlights a lack of planning, as well as some surprising results about risk management. We've got our head of Fiduciary Management, Bob Campion, here to discuss the topic further. Across the board, appetite for risk has increased over the past year despite a volatile economic environment. Why do you think that is?
It's surprising that finding, I have to say so, especially in such turbulent times. You would have thought there would have been a preference to take less risk and actually for most pension schemes, they're getting more mature than nearing their long-term targets. They should be thinking more about reducing risk than taking more risk and last year, after all the turbulence we saw in the markets was really a stark reminder of what can happen if you have a risky investment strategy.
So why is that? I guess it's because lots of hedge funds haven't been putting together detailed long-term plans. Now, if you put these are long-term plans, get that you should be able to work out how much risk you need to take to get to your goal within a reasonable timeframe and obviously, you can take less risk. That's going to be the way that better way of doing it. So, it's really a question of doing your homework, understanding all your options really, and knowing how much risk you need to take and not trying to take more risk than you need.
So what are your thoughts on these findings?
Well, I guess it's been such an unusual year and that might be slightly to do with why the so what they were. So we asked trustees this question before we had all the chaos in the government bond market towards the end of last year and up until that point, actually taking risk by not protecting against interest rates, for instance, that actually paid off.
But it’s almost more like by luck than judgment and it's difficult to know at any point what's going to happen next with interest rates nd that really is the biggest risk that any pension scheme faces. Is when interest rates change, how their portfolio changes, too.
So, I'd always recommend trustees to take this as less risk as possible. It's pretty common sense of a need to get that right. You've got to do it. You have to do your homework, you've got to do your maths, you've got to calculate the amount of risk you're taking. So, you know how low you can get it.
Read the full report and gain access to research on the changing landscape for trustees.
Investment involves risk
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
Pension Trustees' risk appetite on the rise
Read this next
US equities in bull market, despite inflation concernsSee more Insights