‘Don’t get lost in the noise’ of short-term geopolitical risks, investors at the PLSA warn

Investors should be thinking about long-term risks like climate change rather than getting “lost in the noise” of geopolitics and upcoming general elections, asset owners have warned.

On a panel discussion at the Pensions and Lifetime Savings Association’s Investment Conference (PLSA) in Edinburgh, Padmesh Shukla, CIO at the £14bn Transport for London (TfL) Pension Fund told delegates that for open, long-term schemes, focusing on long-term risks is “critical”.

Shukla explained that “there is so much noise in the market”, with upcoming elections in the UK and US as well as geopolitical events in the Middle east. However, he warned that pension funds should not be distracted by these short-term risks when it comes to making investment decisions.

“In some sense, it’s actually the discipline of staying long-term. The noise that we face every day is the challenge.

“The context of the long-term is that we will be holding assets in some cases for decades. So, some of risks are not obvious in the short-term and we have to be mindful of them. This is why things like climate change etc are more relevant for long-term, open schemes,” Shukla argued.

TfL pension fund, which invests on behalf of more than 84,000 members, has pledged to reduce its carbon footprint by 55% by 2030 and to become net zero by 2045.

‘Screen out the noise’

 Dan Mikulskis, CIO at the People’s Partnership, the provider of the £25bn People’s Pension, added: “There are two sets of things: There are the set of things that's entertaining us and grab that attention in a distracting world and there's a set of things that matter to long term investors and that is just a really big problem.”

So much of what investors see is a distraction, but the “biggest risk to investors is arguably too that we can get too distracted by them and make decisions on the back of them that aren’t quite right”, Mikulskis warned.

“I think it's really underappreciated how hard it is to actually set yourself up screen out all that noise,” he said.

Also joining Shukla and Mikulskis on the panel was Leandros Kalisperas, the CIO at £19bn West Yorkshire Pension Fund (WYPF), which is also open to new members. Kalisperas argued that asset owners must be “patient” and not be “triggered” by geopolitical events. 

 This certainly does not mean investors shouldn’t follow them as they can impact “day-to-day decision making in terms of the individual stock selection”, he acknowledged. 

However, “being a supertanker” defined benefit pension fund within the Local Government Pension Scheme, WYPF is cautious to take on lots of transaction costs on behalf of our members, Kalisperas explained.

“Our aim is to capture returns as part of our duty. We are very proud of being a low-cost [inhouse] investment manager and obviously if we make too many sorts of knee jerk decisions it would make a direct impact into our into our net returns,” he said.