FairPensions Annual Lecture: The 5 drivers of high performance schemes

Pension funds can change the face of modern capitalism if their investment and governance structures are fundamentally redesigned.

Rotman International Centre for Pensions Management's director Keith Ambachtsheer told guests at the FairPensions annual lecture - held at Parliament last night - that pension funds were "intergenerational investors" who could revolutionise the economic system.

He said: "Pension funds must transform themselves to have an explicit long horizon focus that considers both micro and macro economics as well as environmental, social and governance factors.

"If we could achieve that vision, we would not just create more wealth for current and future pensioners.

"We would in the process transform today's ‘headwinds' capitalism into a more sustainable, wealth-creating version, less prone to generate the financial bubbles and crises of the last decade, and more legitimate in the sceptical eyes of today's occupiers of Wall Street and of other financial centres around the world."

Ambachtsheer said to arrive at that point both pension systems and pension funds would need to be reshaped to become more sustainable and intergenerationally-fair.

He dismissed the argument over the opposing merits of defined benefit and defined contribution schemes as the "wrong debate".

Instead, he outlined five drivers of high performance in pension funds:

• Aligned interests with pension plan participants
• Strong governance
• Sensible investment beliefs
• Right-scaled
• Competitive compensation

Ambachtsheer argued to achieve these goals pension funds needed to operate on a much larger scale to achieve value for members and stop outsourcing tasks to consultants and investment managers.

He said funds needed to bring those functions in-house and operate a long-horizon return maximization investment structure.

Ambachtsheer added: "Without the existence and legitimacy of highly-focused, well-managed long horizon return maximization instruments, pension funds cannot play the wise intergenerational investor role that we have cast them in."

He said there were some "good omens", pointing to the Dutch system and Canadian pension funds like the Ontario Teachers' Pension Plan which directly runs the high speed rail link between Kings Cross and the Channel Tunnel.