Quentin Marshall, head of the £1.9bn Kensington and Chelsea pension scheme, has delivered the best performance of any UK local authority fund over the past decade by putting half its assets in a global equity index tracker.
Marshall, who has headed the fund since 2014, said choosing individual stocks or funds hinders rather than helps returns, and he avoids making tactical decisions when his team meets to review its investments.
“All three of those things, post-risk and post-cost, definitely don’t add value,” he told the Financial Times in an interview in his Mayfair office.
“The entire asset management industry is built on the premise that it has value,” Marshall said. He rants in particular about advisers who advise pension funds on investment decisions and “rely on backward-looking data that has certainly proven to be completely useless as a source of forecasting.”
Over the past decade, the 51-year-old Tory councilor and banker has achieved average annual returns of 10.8 per cent for pensions for workers at Kensington and Chelsea Council, which serves both wealthier parts of the UK and lower-income boroughs. Great deprivation.
The performance, driven by significant exposure to equities, outperforms other local authorities, according to shareholder advisory group PIRC. The Marshall Fund was the only local authority to achieve double-digit annual returns over the past decade. The next best council was Bromley Council, which came next with 9.3 per cent.
But Marshall is different from many of the people who manage a patchwork of retirement funds for government employees across the country. The Brompton Suite adviser is also CEO of Weatherbys Private Bank in Mayfair and previously held senior investment roles at Coutts and UBS Wealth Management.
Marshall attributes his performance in part to making few decisions. His team meets formally to review the strategic asset allocation once a year, but it has “generally not changed for many years.”
Half of the fund follows the BlackRock MSCI World Index, although it has split its global equity index exposure to exclude three companies linked to the devastating 2017 Grenfell fire in Kensington and Chelsea.
His refusal to pick funds and stocks makes him skeptical that the UK government's decision to pool all the assets of the £391bn local government pension scheme in England and Wales will help boost pension returns, although he supports the government's attempts to professionalise the investment process.
Last month, Labor chancellor Rachel Reeves set out plans for a series of “mega funds” to manage local council pension assets, a move the government hopes will drive billions of pounds of investment into British infrastructure and fast-growing businesses. The reform program was supported by her Conservative predecessor, Jeremy Hunt.
But Marshall does not buy their argument that the reforms will lead to better pension returns for cash-strapped councils.
“This has bad PPP connotations to me,” Marshall said, referring to the public-private partnerships that boomed in the late 1990s and early 2000s and were widely seen as offering poor value. For public money.
“Governments of all stripes face an enormous temptation to move overt spending out of the public eye…but if this was truly an investment, you wouldn't need to ask us to do it.”
“Is this money intended to meet pension obligations or is it a fund that the government spends… I think they are very much inclined to change it from the former to the latter,” Marshall added.
The Kensington and Chelsea Superannuation Fund has no allocation to infrastructure. Marshall said he looked at infrastructure “closely” but chose not to invest because of “very high manager fees, very little diversification compared to liquid stock markets, and limited upside versus existing asset classes in terms of return.”
While the government seeks to consolidate local authority pension assets, Marshall said it was “absolutely essential” that strategic asset allocation decisions remain in the hands of local authorities, as they remain responsible for ensuring pensions are paid. Different boards have different risk tolerances depending on the level of funding of their pension scheme, contribution rates and the demographics of scheme members.
The government has indicated it will allow “high-level strategic asset allocation” decisions to remain in the hands of local councils, but said in a consultation that it believes experience in parks makes it best placed to take on the task.
“If you separate strategic asset allocation from the underlying accountability structure, you have a real problem — the chain of accountability really matters,” Marshall said.
Kensington & Chelsea is building its real estate portfolio, with a target asset allocation of 75 per cent in stocks, 20 per cent in property, and 5 per cent in index-linked bonds.
The council's plan is more than 200 per cent funded, meaning it estimates it can pay twice the pensions owed.
As a result, pension contribution rates have been reduced, freeing up more money for the council to spend on local services.
Although Marshall has some sympathy for the government's move to take investment decisions out of the hands of councillors, who rely on advice from pensions advisers, he hopes the government will leave enough flexibility in the system so that “reasonable people” can disagree.
“I think anything that is too rigid and too dogmatic is likely to lead to bad outcomes and citizens should care about this because it represents £400bn worth of assets. . . . This is real money that will have a real impact on whether your local library stays open,” he said. “Grandma will get good care.”
