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Buck Global Investment Advisors at XeroxDirected Consulting
Directed Consulting takes a streamlined approach, providing directand proactive recommendations on asset allocation and investmentmanager selection.
Streamlined and proactiveinvestment adviceInvestment decision-making can place significant demands on the resourcesavailable to trustees of defined benefit pension schemes. Traditional approachesto setting asset allocation policies and selecting investment managers typicallyinclude detailed recommendations from advisors on a range of options for trusteesto select a preferred approach over the course of several meetings.A new approachBuck Global InvestmentAdvisors’ (BGIA’s) DirectedConsulting service at Xeroxprovides trustees with astreamlined decision-makingstructure and harnessesthe full resources of ourinvestment risk analysistools, long and medium-termasset allocation models,and investment managerresearch.With Directed Consulting,trustees maintain control oftheir schemes’ investmentpolicy and are able tore-focus their allocationof resources towardshigh-level investment riskbudgeting decisons andtimely responses to changingmarket conditions.This is all conducted withina comprehensive andcompetitive fee structure.Getting startedWe start with the ‘big picture’ for asset allocation policy. In an initial meeting withyour trustees and in consultation with your sponsor, your investment consultantwill work with you to establish a high-level asset allocation policy over a specifiedInvestment Policy Period. The output is a simple summary of your trustees’ broadapproach to asset allocation. We will question: Over what period does the policy apply? What is the preferred measure of funding (ongoing, self-sufficiency,or buy-out) for measuring investment objectives and investment risk? What is the required level of investment return, relative to the chosenfunding basis? How much funding level volatility is acceptable now and at the endof the period?
Case study: High-level asset allocation policyA trustee board of a frozen defined benefit pension scheme with a strong covenant sponsor worked withBGIA to agree the following high-level investment policy: The Investment Policy Period is the remaining period of the Recovery Plan: 9 years The trustees and sponsor agree to measure funding level risk on a buy-out basis The buy-out funding level was 68% and the Recovery Plan implies an expected buy-out funding levelof 88% after 9 years The Recovery Plan implies an average investment return of 1.5% p.a. in excess of the discount ratesunderlying the estimated buy-out funding level The trustees and sponsor are averse to experiencing short-term deteriorations of more than 10% inthe buy-out funding level The trustees and sponsor wish to see funding level risk reduce to 5% after 9 yearsEffective long-term asset allocation adviceDirected Consulting translates the high level investment policy into target assetallocations throughout the Investment Policy Period. Working with the targetfunding levels and risk tolerances, we prepare firm recommendations on: The initial mix of growth and risk-reducing investments, and how this mix isexpected to develop over the Investment Policy Period Trigger points for switching from growth to risk-reducing assets, when relevant,based on funding level, long-term interest, and inflation rates The composition of the growth and risk-reducing portfoliosThe trustees meet to discuss our analysis and recommendations, agreemodifications, and finalise the asset allocation policy. Decisions are documented inthe trustees’ ‘Statement of Investment Principles’.Proactive medium-term asset allocation adviceWe provide you with quarterly updates on medium-term asset allocationso that target asset distributions can be amended to reflect opportunitiesand threats in different market conditions. We will deliver: An update on market conditions, together with firm recommendationson changes to the target asset distribution, issued within 10 working days ofeach quarter-end Regular meetings or conference calls with your trustees, or your investment subcommittee, to discuss recommendations and agree changes, within 15 days ofthe quarter-end Asset allocation advicecomprises initial and finalasset distributions in linewith the agreed expectedreturns and risk tolerances. Target asset distributionsare reviewed and updatedto reflect market conditionson a quarterly basis.
Case study continued: Long-term target asset distributionsOur long-term asset allocation recommendation included the following target distributions at the outsetand end of the Investment Policy Period:Sub-portfolioAsset typeInitial allocationFinal allocationGrowthUK equity15%5%Global equity20%10%Property10%10%Emerging market equity10%5%Commodities10%0%Total growth65%30%Fixed interest gilts5%20%Index-linked gilts15%30%Corporate bonds15%20%Total risk-reducing35%70%Risk-reducingTrigger points, referencing their scheme’s buy-out funding level and rates of long-term interest andinflation, were agreed so that the transition towards the final allocation will be accelerated if fundinglevels rise faster than expected, or if interest or inflation rates become more attractive.Recently, our medium-term asset allocation models showed strong signs in favour of corporate bondsversus gilts. The investment sub-committee decided to temporarily increase the target allocationto corporate bonds to 25% and reduce the index-linked gilt allocation to 5%. This position wassubsequently reversed, capturing a significant performance gain.Streamlined investment manager selectionA key feature of Directed Consulting is the streamlining of decision-makingprocesses for selecting investment managers and funds. Traditional approachestypically comprise detailed reports on a range of possible managers and funds,followed by investment manager selection meetings at which representatives makepresentations to your trustees.It is widely acknowledged that, whilst investment manager selection and monitoringcan add value, the proportion of trustees’ time spent on investment managementarrangements is disproportionately high, relative to the time allocated to assetallocation policy.Our Directed Consulting approach provides trustees with access to our best ideas formanagers and funds in each asset class, which are regularly updated as our researchratings change. We make firm, single recommendations on fund choices, balancingtotal investment management fees against prospects for outperformance againstagreed benchmarks.Our quarterly advice to you includes updated research and ratings on each existinginvestment manager, plus recommendations, when necessary, on replacementinvestment managers and funds.Within Directed Consultingwe recommend a singleinvestment manager foreach asset type within theagreed investment policy.
Case study continued: Investment manager recommendationsAfter analysis of correlations between the different managers’ investment performance, transition costs,and total investment management fees, we proposed the following mix of investment managers andfunds to implement the initial asset distribution:Asset typeInvestment managerInvestment stylePerformance targetAMCUK equityAPassiven/a0.10%Global equityBActive 2.00%0.60%PropertyCActive 0.75%0.50%EM equityDActive 3.00%0.80%CommoditiesEActive 2.00%0.75%Fixed interest giltsAPassiven/a0.10%Index-linked giltsAPassiven/a0.10%Corporate bondsFActive 0.75%0.25%1.10%0.40%OverallA comprehensive serviceDirected Consulting offers the flexibility to adopt and monitor a more sophisticatedinvestment policy, combined with proactive advice on target asset distributions andinvestment manager changes. After the initial high-level review of asset allocationpolicy, changes to target asset distributions and investment manager arrangementsare considered and agreed by the trustees or an investment sub-committee inquarterly meetings or calls, making effective use of your time. All other aspects ofmanaging your investment policy, including monitoring of investment performanceand risk, re-balancing, implementing new investment manager arrangements, andupdating documentation, such as the SIP, are undertaken by us, with quarterlysummary reporting.Our fees are expressed as a percentage of the value of scheme assets, coveringcomprehensive investment advice, implementation, training, and monitoringservices. This offers a “no surprises” fee structure.Contact usFor more information on our Directed Consulting service, contact:hrconsultinguk@xerox.com“Buck Global Investment Advisors” is a trading name of Buck Consultants(Administration & Investment) Limited160 Queen Victoria StreetLondonEC4V 4ANT 44 (0) 20 7429 1000www.xerox.co.uk/HRConsultingRegistered office: 160 Queen Victoria Street, London EC4V 4ANRegistered in England no.: 1034719Authorised and regulated by the Financial Conduct Authority 2014 Xerox Corporation and Buck Consultants, LLC. All rights reserved. Xerox and Xerox and Design are registered trademarks of XeroxCorporation in the United States and/or other countries. Buck Consultants is a registered trademark of Buck Consultants, LLC in the UnitedStates and/or other countries. BRP2825
include detailed recommendations from advisors on a range of options for trustees to select a preferred approach over the course of several meetings. A new approach. Buck Global Investment Advisors’ (BGIA’s) Directed . Consulting service at Xerox provides trustees with a streamlined decision-making structure and harnesses the full resources .
