Mike Weston discusses effective planning for unprecedented market events

The past few months have been a rollercoaster ride for the markets.

Our CEO Mike Weston was at at the Pensions Expert Local Government Pension Scheme Forum earlier to give a talk on effective planning for unprecedented market events.

With the future of the markets still far from certain, this has never been more important for institutional investors.

Steps can be taken

“What we have proven over the past few months is that we can plan for unprecedented physical events,” said Mike. “We can move from the office to home working and still work effectively.”

Planning for unprecedented market events isn’t as easy, admitted Mike, but he explained that steps can be taken to mitigate risks.

“It’s important to try to protect immediate funding ratios [having enough cash to pay pensions in the short-term], while maintaining a long-term investment strategy to meet liabilities.”

Mike said that preparing for an unprecedented market event is very difficult because, by definition, an unprecedented event has never happened before.

“Significant costs can be spent preparing for an event that doesn’t happen, and not protect against an event that does,” said Mike.

Scenario planning

A better strategy is to do as much scenario planning as you can and determine what you would do if certain circumstances resulted from the unpredictable events.  

“Let’s not try to define the event, but rather the implications,” said Mike.

“There many different investment strategies that can be used to “insure” investment portfolios, from diversification at the simplest to all manner of complex derivative hedging structures.  How much you’re willing to ‘pay’ for this insurance depends on your appetite for risk.”

Long-term investors

Mike also explained that it’s important to understand the length of time an unprecedented event could take place.

As a pensions pool we are very much a long-term investor. “We don’t have to react to short-term shocks, nor should we.” Mike and the team at LGPS Central Limited have been doing all they can to effectively serve their Partner Funds during the current market volatility, and will continue to do so no matter what the challenges we face.   

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