Ashworth The Reluctant Risk Taker
29 Jun 2011
With a share in the responsibility for the financial well-being of tens of thousands of people, Mark Ashworth is a great believer in staying focused.
Mark Ashworth said:
If you think about it too much, you might not do anything. So you focus on the tasks at hand, make sure you do them well, and try not to be overwhelmed.
As head of the professional pensions trusteeship division of Law Debenture, one of the UK’s oldest independent trustee firms, he sits on the board of some of the UK’s biggest pension funds – among others, two schemes of the Lloyds TSB Group, worth about £15bn, the Royal Mail Pension Plan, worth about £26bn, and the Sainsbury pension scheme, worth about £4bn.
Like most pension trustees, Ashworth does not court publicity. He is patient and precise, and always says exactly what he means to – qualities he probably acquired during his training as a barrister.
Dawid Konotey-Ahulu, founder of the consultancy Redington, studied for the bar with Ashworth 24 years ago, and his firm works with some of Ashworth’s client schemes today. He said:
Mark always uses his words carefully. He’s a very good leader of board discussions. His questions are well-chosen and highly accurate, which will be his barrister’s training coming through.
Ashworth is willing to stick his head above the parapet when he thinks it will benefit his clients. He recently wrote a letter to the Takeover Panel that received some media attention, calling for trustees’ role in takeover talks to be recognised, with a formal requirement for bidders to set out their plans for target companies’ pension schemes in advance.
To bankers and others working on M&A transactions, it can sometimes look like pension trustees are trying to scupper deals by abruptly shifting to “worst-case scenario” deficit measures, known as buyout valuations.
Ashworth said:
I don’t think trustees should automatically switch to the buyout valuation. They may be compelled to, if they think the company’s financial strength is being weakened.
It may be that this perception stems from the go-go days before the credit crunch, when a lot of corporate activity was highly levered, and trustees were being driven to use the buyout valuation. But it is not trustees’ job to frustrate all corporate activity – it can sometimes be in their interest, if their company is being acquired by a bigger and stronger group
Pension trustees can be forgiven for their aversion to risk. Their job has grown steadily more onerous as tougher accounting standards, stricter pensions regulations and increasing life expectancy have turned defined-benefit pension deficits into costly, troublesome problems for companies.
Dealing with deficits
Despite improvements in funding since the depths of the financial crisis, Ashworth said deficits are still the most pressing difficulty.
He said:
There has been a real shift in the past few years. Where maybe before companies and trustees were more comfortable running this investment risk, now many have decided they simply do not want it any more. Many trustees and companies are reluctant risk-takers, trying to get to full funding
The fund management and pensions consulting industries are not short of solutions to the problem. One that has piqued interest from trustees is delegation – a way for full-time market professionals, such as consultants or fund managers, to take more responsibility for managing pension funds’ investments.
Known as fiduciary management, this can involve trustees delegating decisions such as when is the right time to move out of equities and into bonds, as well as the operational responsibility for making it happen.
Ashworth said:
It’s being considered a lot right now. There are few schemes that have not looked at it. I
think there is a recognition among pension schemes that sometimes decision-making is not fast enough.
In the UK, consultants Towers Watson, Mercer and Aon Hewitt are offering to do this job for trustees, while fund managers such as BlackRock, SEI and Mn Services have moved into direct competition with them.
Some fund managers have grumbled that consultants are using their powerful role in the pensions industry to squeeze them out of such fiduciary business. Ashworth said the best antidote to such suspicion was an open, competitive tender process.
He said:
I don’t regard fiduciary management as being some new category of service. If someone is offering to invest the funds then it’s fund management. I don’t see that there is some new hybrid activity that justifies suspending normal processes and principles.
Non-cash assets
But one of the most productive ideas for fixing the deficit problem has come from the other side of the table – from companies and their advisers. They have offered to put non-cash assets, such as property portfolios, into pension schemes. Corporate adviser Deloitte expects to help arrange £2bn worth of these “contingent asset” deals this year.
Two of Ashworth’s clients have done this with their pension schemes – Sainsbury with a portfolio of its stores; Lloyds with a basket of debt securities.
Ashworth will not be drawn on the specifics of either client’s arrangement, but he said:
In general, if there is not to be immediate cash funding then these deals are very sensible. They can also provide valuable additional security.
But he added:
Trustees really need to make sure that these are unencumbered assets. If a company were to fail, lenders will be in there putting claims in on everything that moves. This is why trustees should set up these arrangements to protect against the risk, even if very remote, that a company gets into any trouble. You should buy umbrellas while the sun is shining.
LawDeb Pension Trustees
Pension Trusteeship
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