Nurturing people’s savings and pensions requires team work, says one experienced manager
The influences on a person’s path in life are many and varied; for Andrew Swan, leaving university in 1982 with an overdraft to shoulder, turned out to be important. “I paid for my post-grad years with a loan. My aunt worked for a bank and my knowledge of interest rate differentials – in this case, what I was paying for my loan and how much less I would have to pay if I worked for a bank – was a deciding factor!” Swan had graduated from Birmingham University with a degree in International Studies (to which he added an MSc in International Studies from the London School of Economics).
The euro bond market in particular was going through a boom period and Swan was soon trading bonds, which he did for the next decade before moving into bond sales. He worked for Merrill Lynch, Deutsche Bank and Goldman Sachs.
Before joining M&G Investments, Swan was client relationship manager for Banquo Credit Management, responsible for developing relationships with institutional clients in the UK and Europe. He joined M&G in 2005, as a Director of Fixed Income in the institutional fixed income team and his primary focus is developing its institutional bond business in the UK. “I was 45 and decided that my experience, and grey hair, could be put to better use in investment management.” It was a timely decision, taking Swan out of an area of financial services that would subsequently tarnish the whole of the sector. But he still sounds a cautionary note about over-reaction to recent events: “Regulation and oversight definitely need to be improved to curb some of the excesses. But I think that at the same time it is important that we don’t curtail the entrepreneurial spirit that has driven what is one of our leading industries.
“You can draw a parallel with Formula One regulations; some people will always try to find a way round regulation. I think at an individual level, people need to ask themselves if they are doing the right thing. It boils down to that; the industry needs to re-establish its credibility and, as an industry, make sure it is doing the right thing.” That measured approach is mirrored in the culture of M&G: “It is all about making good investments and that is down to having good people. We are always striving to deliver performance that our clients need but in the most risk-effective way. We have some exceptional people here and we hang on to them; the staff turnover is very low.
“It’s great working in an environment where you can talk to people about what clients are saying, what consultants are saying and come up with ideas that meet the challenges of people trying to protect and grow their investments.
We focus on credit analysis. We took a decision nearly 30 years’ ago to dedicate a lot of resources to analysing risk rather than effectively ‘guessing’ which way the market is going to move.
“We’ve probably got the biggest team of credit analysts in Europe; career professionals whose job it is to understand the sectors they cover, gauge every company within those sectors and get to know the management and their business.
It really is an exceptional resource and I think that is part of the reason why we have been so successful in delivering performance.” M&G is owned by the Prudential and manages a large chunk of its funds: “As an insurance company, the Prudential has a lot of long-dated liabilities just like pension schemes and we are always looking for investments that will act as a good match for those liabilities.
So we are very well-aligned from that point of view. And our work for the Prudential acts as a good road-test for investments that we can subsequently roll-out to our external clients.” The challenge today is how to generate returns for funds in a low yield environment.
There might be a temptation to push into areas of greater risk; not a healthy instinct when handling people’s savings and pensions. “The challenge is understanding the breadth of available strategies and trying to assess where the risks lie. The trick is to have the right managers picking the right assets,” said Swan.
He concedes it is difficult to see where real and sustained economic growth is going to come from: “The banks have traditionally provided the fuel for growth but they are in the process of de-leveraging with some way still to go. On the other hand, that de-leveraging process that the banks are going through provides some great opportunities for pension funds.
“Nearly everything we are doing at the moment has some direct or indirect link to the banks de-leveraging. There are some assets on bank balance sheets that are slowly coming into the market, so there are possibilities for investment there. We are also buying properties from companies on a sale and lease-back basis.
It’s an alternative method of raising finance for those companies that is not short term and for us, with good companies in prime locations, represent a good investment for insurance and pension funds.” It’s been a particularly satisfying strategy for Swan: “The Prudential has been investing in a long-lease property index since 2000 and in 2007 we launched a fund for our external clients. It’s now more than £1bn in value, more than 95 per cent of the investors are pension funds, either directly or indirectly and we have a target of inflation-plus 4 per cent.
“It’s very simple, very clear – leading retailers, good tenants and prime locations – and it’s been an absolute pleasure to go and present to trustees. I sometimes have to temper my enthusiasm because it might come across as too ‘salesy’! But it’s just a really good idea that we have had great success with.” There are occasional disappointments: “We launched a fund at the height of the financial crisis to lend directly to UK companies who were finding that the banks just weren’t there for them anymore,” said Swan. “We raised £1bn, but it took a while for us to do that; not all pension funds are set up to make quick decisions. And by the time we had reached that, the situation had got so dire that the Government introduced Project Merlin requiring the banks to meet lending targets.
“Having said that, we still did manage to raise £1bn and it’s gone to UK companies who have been happy to diversify their sources of funding.
In fact, we are about to launch a second fund.
So, the returns have not been quite what we expected but nonetheless it’s done well and I think pension schemes are realising that there are some real opportunities if decisions can be made quicker.” How does he prepare himself to make decisions on which so much rises? “I’m lucky that I work in an environment surrounded by extremely good people. I think it’s really about taking advice from people who know the business well.” And away from work? “Time with the family, definitely. And I’m very privileged at my advanced years still to be able to play competitive team sport. I play five-a-side every week and it’s fantastic fun in terms of burning off any excess energy. My nephews who are in their early 20s come along and play as well, and that keeps you honest!
“I also coach rugby at a junior level. It’s very important to me to act as a mentor to kids. It’s a very diverse group from all sorts of backgrounds and a great team. Seeing them develop and grow together and be successful together – that’s something I take to work as well; it’s about helping each other to make good decisions and how to progress and be successful.
“I’m 52, I really enjoy what I do and I think that as long as I can keep going as long as possible that would make me very happy. I do feel that we are doing good things for UK pension schemes and I go to meetings looking forward to meeting people and hopefully being useful and helping them navigate through these times.
“And at a personal level, wanting to keep fit and healthy. I’m half Scottish, half English; as long as I can live long enough to see England win the World Cup and Scotland win a Grand Slam that would do me!”