BCPP to shake up global equity manager selection
Border to Coast Pensions Partnership is to take a different approach to equity manager selection as it eyes a rise in its assets under management (Unsplash/Karl Moran)
Good morning. One of the UK’s largest local government pension pools is shaking up how it chooses the global equity fund managers it works with.
Border to Coast Pensions Partnership currently manages about $87bn but this could rise to nearly $150bn as part of the British government’s pension reforms.
Ryan Boothroyd, the pool’s head of external management, said the changing macroeconomic environment since 2022 meant he would start taking a different approach to selecting the global equity managers he works with.
He said: “The quality style has performed very strongly for a long period of time and a lot of that was probably structural
“Interest rates are falling, you’ve got a big tailwind for that strategy.
“The thing that has prompted a rethink is that since 2022 you have a very different dynamic.”
As interest rates have gone up since 2022, this makes defensive companies - those which provide consistent returns and stable earnings like a consumer staples business such as Unilever - more expensive.
Boothroyd said: “They are like an insurance premium. They will never give you a bull market return but will give you good protection on the downside.
“It has got more expensive as you have moved into a different market environment.
“It has been super-expensive to get defensive exposure because you have to pay more for it. If you have an asset which is growing at 8 per cent in perpetuity and interest rates are going up, that is less* valuable.”
But the challenge has been how to assess whether a defensive investment has been doing its job since, as Boothroyd says, finding out how much it has outperformed is “not in any way informative” since it is not really intended to outperform.
This means Boothroyd and BCPP will take a more “nuanced” approach, splitting returns into upside and downside and finding out what specific attributes a fund will offer.
He said: “The type of manager we will end up selecting will be different to the one we have ended up working with.
“We have gone with high conviction managers. Where we will end up is probably with someone who is a bit more balanced, because you have to pay for that pure quality exposure and that has not been consistently rewarded.”
*We originally reported that the asset would be more valuable as interest rates increased.
