Category:

Investment Strategies

Laura Catterick making a key point in presentation to Mobius team | Mobius
Innovation, Investment Strategies, Pension Administration

Innovating to help pension schemes achieve their goals.

That’s why Mobius has an ongoing programme of innovation. We want our clients – from the largest to smallest pension schemes – to benefit from the latest= developments, without being held back by regulatory, governance or cost barriers.

In the last 12 months Mobius has:

  • Created a first for the UK DC pension market by working with Macquarie Investment Management to manufacture a zero-fee index fund for a major UK DC scheme.
  • Partnered with Aegon Asset Management to develop the UK’s first property fund to provide a diversified exposure to the UK institutional property market for DC pension schemes – avoiding the concentration risk of using a single manager.
  • Worked with River and Mercantile to manufacture an innovative Structured Equity solution. DB pension schemes of all sizes can now structure a growth asset tailored to meet their specific requirements through a Structured Equity approach without being restricted by legal and governance paperwork and costs and prohibitive minimum fees.
  • Established a range of income paying funds on the platform, which can pay income directly into DB schemes bank accounts. This innovation means DB schemes with negative cash flow do not need to sell as many units to generate cash to pay benefits, reducing transaction costs and increasing efficiency.
  • Launched an ESG reporting service to help schemes complete their implementation statements. Our service provides a bespoke report for scheme trustees setting out their scheme’s asset managers’ attitudes and capabilities for investing responsibly. By using our reporting service trustees do not need to contact the managers individually, saving them time and expense.
  • Rolled-out an innovative ‘Smart Rebalancing’ approach to fully automate the rebalancing process for DB and DC pension schemes, reducing risk and cost.

But you don’t need just to take our word for the benefit to schemes of our ongoing innovation programme. This year we have been recognised by two of the pensions industry’s most prestigious awards programmes. We are finalists in the UK Pensions Awards DB and DC Innovation Awards 2021 AND the Pension Age Innovation Award 2021.

Our approach to innovation is yet another example of the benefits to schemes of holding their assets on the Mobius platform.

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Joshun Sandhu, Head of Investment Solutions & Partnerships | Mobius
Defined Benefit, Innovation, Investment Strategies

Hedging your equity exposure – bit tricky?

These appear to have had mixed levels of success and it begs the question – is there still a prominent place for equities given their inherent volatility? A hedged equity ‘shape’ can of course reduce the inherent volatility of equities whilst still giving an equity-like return.

Structured Equity is becoming increasingly popular with trustees as a way to capture these returns. It allows trustees to structure a growth asset which is individually tailored to meet their scheme’s desired return profile – while managing equity risk exposures.

Until now, the ‘catch’ with structured equity has been the expense and complexity of setting up an arrangement. Generally this is not an issue for large pension schemes with extensive governance and resources, but for smaller schemes the legal and governance costs, drain on management resources and minimum fees have put barriers in the way of them benefiting from structured equity.

Well, now that’s all changed. At Mobius, we’ve partnered with River and Mercantile (R&M) to make their structured equity solution available to schemes of all sizes.

R&M’s solution allows individual pension schemes to structure an asset to meet a defined return profile. It is an approach that can be used to dynamically manage equity risk exposure through different stages of the market cycle and increase the certainty of outcomes. Typical approaches include equity protection when markets fall, defined upside to meet target returns or leveraged equity exposure.

Unlike traditional investments, the underlying instruments are a set of contracts which define the investment return payoff for a given level of the equity market at maturity.

By manufacturing the structured equity solution on the Mobius platform we’ve stripped-out the cost and complexity, and made it available for schemes of all sizes. All of the infrastructure requirements, such as legal, governance, investment manager, custodial, collateral management and counterparty arrangements are already in place within our unit-linked life company.

Using our platform, schemes simply need to work with their consultants to define the exact shape of returns they require from equities to meet their funding requirements. We then set up and administer an individually tailored portfolio for each scheme on the Mobius platform.

Our approach to manufacturing funds is making more sophisticated and effective investment strategies available to all schemes. To date, we have created solutions to give schemes access to commercial property, multi asset, zero-fee true index and private asset strategies and there’s more to come It’s yet another example of the benefits to schemes of holding their assets on the Mobius platform.

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Silhouette of traveller by water with sunset | Mobius
Platform, Investment Strategies

Why independence is essential in the platform world

There are now a number of players in the market, each with different ownership and business strategies. Sitting at the centre of this market, we believe Mobius is the only one that can claim genuine independence from the potential conflicts of other ownership models.

We all know there are platforms owned by major asset management groups. Clearly this offers the advantage of big brand name backing and financial strength. But as far as I can see all asset manager-owned platforms require their clients to hold at least some of their assets in ‘house’ funds.

How can it be in the best interests of clients to have to hold one manager’s funds when there may be alternative strategies out there which better meet the clients’ needs? Using an asset manager-owned platform obviously constrains the consultants’ ability to advise on ‘best-of-breed’ funds in every sector.

Other platforms are owned by global pension and investment consultants. I suspect they argue it is efficient to have advice and investment administration all in one place. But with the regulator already looking at conflicts in the consultancy sector, surely this is another potential area of risk? What’s more, do trustees really want all their eggs in one basket?

Come to that, do other UK pension and investment consultants want to recommend their competitor’s platform to their own clients and face the fear, real or imagined, of poaching?

We can also look at the model of platform ownership by industry aggregator. Here there can be the appearance of a lot of assets on the platform – but in effect these are largely ‘in-house’ clients. Do small and medium pension schemes really want their assets on a platform of an owner whose business model is to grow bigger by aggregation – and isn’t there the risk that they are just a small fish in large and potentially homogeneous asset pool?

There’s also the question of big corporate ownership. Do we seriously believe that the platform is the number-one priority of global financial services players? Will they put their platform business ahead of other major areas of the business? Will the platform be first in line for investment for the latest technology? Will the brightest and best in their management structures see the platform business as their best career move?

That’s why we believe independence is critical at Mobius. We are completely agonistic about fund choice. If a consultant advises a scheme to use a specific fund or strategy, we can make it available to them – irrespective of asset manager. We can also quickly blend funds to make bespoke strategies available to schemes. We’re also completely independent of consultants, which means we can focus all our attention on offering excellence in investment administration, without perceived conflicts of interest, or a potential bias towards ‘house’ clients over those introduced by other consultants.

We’re also completely independent of big-business lack of focus. Our platform is our only business – we are focussed solely on our platform clients, rather than a myriad of other group businesses. Our platform benefits from investment in the latest technology. Our brightest and best, senior management and the whole team are 100% focused on delivering investment administration services every day – so our clients get our full attention all the time.

Some may claim Mobius is a relatively small business, so cannot offer the financial security of other platforms with bigger owners. Well let’s dispatch that argument straight away. We are a UK regulated life company – and have been for nearly quarter of a century. That means we are operating successfully in one of the best and most tightly regulated financial services jurisdictions in the world.

We are required by our regulators to hold sufficient regulatory capital to meet all of our liabilities. And guess what – we hold more regulatory capital than we need, simply to provide extra security for our clients. We also administer over £23 billion of assets on the platform for our clients, giving us real influence and fire power in the industry.

And don’t just take our word for it. The independent industry judges at the UK Pensions Awards have recognised Mobius as the best institutional pension platform in the market in 2019 and 2020.

So in summary, there are three key things that make Mobius really different from other institutional platforms; independence, independence and independence.

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Joshun Sandhu, Head of Investment Solutions & Partnerships | Mobius
Platform, Innovation, Investment Strategies

Getting to grips with ESG reporting

The government has recently consulted on plans which will require schemes with more than £5 billion in assets to publish disclosures on climate-related risks from October this year. These requirements are expected to filter down to smaller schemes with over £1 billion in assets from next year.

This comes on top of existing requirements for trustees to report on their Environmental, Social and Governance (ESG) investments.

Since October 2020 all trust-based pension schemes with more than 100 members have been required to publish an annual implementation statement which sets out how they acted on the principles set out in their Statement of Investment Principles (SIP). This must include schemes’ policies in relation to ESG considerations, such as climate change.

While reporting on ESG investments is in principle relatively straightforward for trustees, the devil is in the detail. Schemes have multiple fund managers – all of which will have different approaches to ESG investing, so trustees will need to collate several layers of information from multiple sources.

This includes, for example, whether their managers have ESG or climate change policies and if so, how these policies are integrated into their investment process. Do they engage with the senior management of companies whose shares they hold to influence their behaviour? Do they use their vote to influence how companies act? These and numerous other ESG-related questions need to be answered and reported on if trustees are to meet their implementation statement responsibilities.

This is coupled with the reality that whilst the asset management community states it is committed to the principles of ESG investing, it is still coming to terms with meeting the detailed information required for implementation statements.

That’s why Mobius has recently launched an ESG reporting service for our pension scheme clients. As all our clients’ assets are held in one place on our platform, we are perfectly positioned to gather this information from managers. The resulting report collates asset managers’ ESG themes – set out in a way which helps trustees complete their implementation statements.

The Mobius service is designed to help trustees contextualise the approaches of asset managers and to help them understand how the scheme assets are being invested. This would otherwise be a time-consuming and onerous task for them to complete.

It’s just one more example of the benefits to schemes of holding their assets on the Mobius platform.

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