Part of Standard Life Wealth’s role in the debate was to argue the case for investment solutions tailored to trustees and their clients.
Charles Insley (L)
Charles Insley, the firm’s head of international, explains how they provide the sophistication needed across the asset class mix to give much-needed diversification, and why this is possibly even more relevant for low-risk mandates given the change in the risk attributes of asset classes in the past few years.
Gary Corcoran: What is the main advantage of offering sophisticated portfolios given the calls for clarity, transparency and simplicity?
Charles Insley: Delivering consistent returns to trustees in that low to medium risk space is the benefit. Not many managers, if any, can do that with the same level of historic performance and the same level of resource, in terms of what actually sits behind the research and engine.
GC: How do you deliver consistency when the traditional risk characteristics, particularly for fixed income, are changing so radically?
CI: If you’re going through a change in relation to the fixed interest cycle then that’s something that is incredibly important to deliver. The thing I worry about for the trust market is those portfolios where you potentially get a surprise factor where you haven’t done anything about the underlying investments. Trying to avoid surprise is so important, specifically in relation to fees and the expectation around meeting a benchmark or a specific target. Right at the beginning you’ve got to set that up in terms of the client’s expectation and ensure that everyone that is party to that decision is aware of what that expectation is.
GC: Does that expectation differ depending on whether they’re a private client or a trustee?
CI: The allocation of medium to low risk is the same though the trustee’s role is more complicated because while the contractual obligation is between the investment manager and the trustee, there is a third party involved, the end client or their beneficiaries. What we find is trustees have a set expectation and they would often prefer the portfolio to be invested in a more conservative way. Sometimes, depending on their level of sophistication or knowledge, there is the expectation that you’re always going to make money. The trustee’s role is quite difficult, but the investment manager’s role in terms of setting that out in the right way is particularly important, right at the very beginning. What do you charge? What are you trying to achieve? How are you going to deliver that? What should I measure you against? What are your investment timescales? That is the time you really need to set it out in the right way so everyone is clear on their expectations.
GC: How bespoke are you able to make an investment solution for a trustee?
CI: The ‘bespoke’ question is an interesting one in that a lot of managers do say they provide bespoke portfolios but when you look at the underlying portfolios there is often quite a lot of consistency across the board. We think we’ve got, in the majority of cases, enough investment solutions to cater for the majority of clients that we deal with. If you think on the target side, LIBOR + 1% to LIBOR +4%, with 25 basis point increments, there’s quite a range there already. I wouldn’t want managers to bespoke specifically for clients when there’s no need. There are times where maybe the income requirement is a little higher and you need to tweak the portfolio to increase the yield, or indeed where there are specific restrictions imposed on a portfolio. Then those need to be written into the investment guidelines and you need to put in place an investment portfolio that is consistent with those.
