Can a DB master trust enhance investment governance?

Risk warning

The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.

The importance of a good investment governance model was brought to light during the period following the UK’s ‘Mini Budget’ in September 2022, when gilt market volatility was at an unprecedented level. The impact of this on defined benefit (DB) pension schemes was significant. Trustees and employers were required to make decisions and implement solutions in very short periods of time.

Outcomes varied by scheme across the industry. Those that successfully navigated through this period typically had efficient governance models in place and could react to bond market movements in a timely manner. However, others found that the short decision-making timescales challenged their governance models, and this resulted in serious setbacks for some schemes.

The right strategy at the outset

Agility and flexibility are important as they help your investment strategy stay on track. However, investment governance isn’t just about being nimble in the operational sense. It is equally important to set the right strategy at the outset.

A solution to meet your objective - whether it’s buyout, run-off or growing a meaningful surplus.

What does a good operational investment governance model look like?

Good operational investment governance models may differ depending on the level of delegation from scheme trustees and sponsoring employers. However, all good models have the ability to act fast thanks to dedicated resourcing and strong investment expertise.

This could include speedy investment decision-making, arranging for documentation to be signed rapidly, or quickly determining where monies need to be sourced from. A master trust provides a compelling solution for many schemes, because it can offer these services along with several other benefits.

A nimble investment governance model

A nimble investment governance model is a particular focus for the abrdn pensions master trust, given abrdn’s asset management capabilities. Furthermore, for our service providers, pension scheme governance and operations is their day job. This means that the time and experience they bring to the table adds value.

The benefits of a common investment manager, adviser and trustee

The abrdn pensions master trust has a single asset manager, professional trustee and investment consultant covering all advice. Let’s conclude our article by looking at the benefits of using a common investment manager, investment adviser and trustee across all sections

The term ‘single manager’ is somewhat deceptive when it comes to DB master trusts. Far from being managed by just one individual, a large pension scheme and its smaller component sections will be run like a business and resourced appropriately. There is a large team of experienced professionals behind a firm such as abrdn.
Section-specific strategies, tailored to objectives – whether buyout in the short-term or longer-term, or run-off, can be efficiently designed and implemented.
Investment and funding strategies can be designed in preparation for future collateral calls. With liquidity waterfalls identified in advance, requests for cash can be met quickly.
Having your LDI funds with the same manager as the rest of your portfolio addresses one of the key problems that schemes faced during the gilts crisis in September 2022
A partnership approach between a common trustee, consultant and manager provides shorter communication lines and improved information sharing – allowing time for resolution and implementation.
Well-defined delegation of roles and responsibilities can reduce the complexity and time of transition between mandates.
Ultimately, for a scheme with 50 separate sections all using the same manager for their LDI solution, there is one communication between one manager and one investment consultant and single trustee board. The scale of operation brings importance and simplicity.

With professionals covering all aspects of the abrdn pensions master trust, you can be confident that your section will have a solution to meet your objective – whether it’s buyout, run-off or growing a meaningful surplus.