As Mark Davies mentioned in his post on complexity, many of you will be familiar with the endless challenge that is regulating office temperature. A topic that, in my opinion, receives far too much air time on my floor at work. However, this ongoing battle has made me think about the tribulations that trustees go through on a daily basis.
‘It is hot in here?’, ‘No, I’m freezing’
These two comments seem to be on a continual loop, one minute someone is too hot, then half an hour later someone (remarkably, more often than not the same person), is too cold. You might ask how this is possible; well, until recently, we all had access to the thermostat. You would often see people disappearing off to the riser cupboard to change the temperature to suit their needs. In principle, this may seem logical as surely everyone should be entitled to working in an environment where they are comfortable? It is, in practise, highly impractical. The innocent bystanders spend far too much time having to either wrap up, or shed their clothing, in a bid to fit in with one person’s individual thermostat. As we’ve discovered, there are many factors that play a role in dictating if someone is hot, cold or indifferent – have they come in from the cold recently, have they just run up the stairs, are they drinking a hot drink, or indeed a cold drink, how much have they had to eat that day, was it spicy – the list is endless.
Being a bystander and trying to predict these different scenarios, in order to be in a position to make an outfit choice, is exhausting. However, it has made me realise how hard it must be for trustees to try and position their pension scheme, especially when they are continually subjected to an endless list of factors (all out of their control and seemingly impossible to predict) that impact their portfolio. Yes, I know they often have a very capable consultant who is able to help them weather the colder times and position them well for the hotter times, however, no consultant, indeed no individual, has the keys to the hypothetical riser cupboard to alter the settings.
Now, before you worry too much about me losing my fingers to frostbite, I can assure you that we have found a solution in our office. We have set the temperature to a constant 23 degrees and locked the riser cupboard – we have determined a fixed outcome, regardless of outside conditions. Arriving at this temperature was an important decision and one that we ensured we did properly. We discussed it widely within the team, looked at other potential temperatures and, believe it or not, did research on the optimum working temperature. Trustees also have the option of fixing an outcome in their portfolios too, something we call structured equity. With structured equity, trustees are able to gain some certainty around the outcome of a certain part of their portfolio, regardless of outside conditions. Whilst this may be daunting initially, especially as nothing seems predictable in today’s market, we have seen trustees gain comfort around the mechanical nature of this strategy. It doesn’t rely on manager skill, or market assumptions, instead it allows you to determine your specific parameters and therefore providing comfort during certain market environments, similar to our pre-agreed temperature in the office. However, as with us setting the temperature in our office, it is important to ensure that the initial decision is made after a period of consultation and education, where trustees are provided with support to make this decision.
We’ve even found that once trustees see this solution in practise, they learn to appreciate the almost boring reliability of it! But as with most things in life, this security allows them to turn their attention to other areas of their portfolio, which is similar to me in the office. Now I don’t have to worry about the temperature, I’ve been able to focus on my day job a lot more!