The role of asset managers is to look after other people’s money and aim to help them meet their future financial needs and aspirations. Asset managers channel money from people’s savings (in this case a pension) into companies which could then provide employment and help the country to grow.
The importance of regular saving is under the spotlight as it transpires that many British savers lack adequate provisions for their future financial needs. This is especially true of pensions as increasing life expectancies mean that state pensions are being stretched, and these payments alone may not provide the lifestyle people want in their retirement.
Most people are likely to be members of defined contribution schemes, where you save for your own retirement, and your income in retirement depends to a large extent on how much your savings have grown, rather than defined benefit, where your employer offers an income in retirement based on a percentage of your wage. The shift towards defined contribution means people are taking greater responsibility for their long-term savings.
Some people manage their own pensions through, for example, a SIPP (self-invested personal pension) but most have company pensions – either defined benefit or contribution. This means their pension will be pooled with that of their co-workers, allowing everyone to benefit from economies of scale and the ability to invest in a range of different investments, thus reducing risk.
Asset managers and pensions
If an asset manager looks after a company’s pension plan, it will manage the money contributed and make decisions which aim to grow the money in the pension fund (or investment portfolio).
A key consideration is the age of the members. If members are younger (on average) they are a long way from retirement, so do not need their money for a long time. Young funds may therefore be able to afford to take on higher risk, riding out the peaks and troughs which may be involved in investing. The opposite is true of mature pension funds, which generally opt for lower risk investments so the money is there when it is needed.
Where does the money get invested?
“Asset managers provide an important economic function, bringing together those with money to invest and companies and governments that need capital.”
Money can be invested through a range of different investment strategies. An asset manager will consider the investment objectives of the pension schemes, risk tolerance and other factors, then make investment decisions.
As an active manager, Schroders relies on analytical research, forecasts, and our own judgement and experience in making investment decisions; we do not follow market indices in the same way as passive management.
Another integral part of our role is to engage with company management to try to protect and enhance the value of our clients’ investments. This provides companies with the money they need to invest and grow. This long-term engagement and financial support is important for the broader economy. For example, in the house building sector, our support of companies during 2009-10 supported jobs in the building industry and boosted new housing at a time of economic uncertainty.
Stewards of capital
Asset managers can also add value to society by acting as good stewards of capital, using their influence as a shareholder to encourage businesses to act responsibly, for instance through embedding socially responsible investing principles, which is a fast-growing area as people seek to apply ethics to their investments.
“Asset managers have an important and often unrecognised role in supporting and contributing to the wider economy, as well as managing people’s savings and contributing to a more comfortable future for them.”
– Sheila Nicoll, Head of Public Policy at Schroders