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SWIP – The Underperforming ‘Dog’
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Date: 12th Aug 2004
Lloyds TSB’s No 1 and No 2 Pension Funds, which between them are worth approximately £8 billion, are managed by the Scottish Widows Investment Partnership. Independent Investment Advisors, Bestinvest, run a regular guide to avoiding the worst performing funds – ‘Spot the Dog’ – and their most recent report shows that Scottish Widows (including SWIP) is the group with the largest pack of dogs. According to Bestinvest, commenting on retail funds, Scottish Widows and SWIP have £1.6 billion spread across no less than ten ‘Dog’ Funds. SWIP’s underperformance is acknowledged by Archie Kane, the Chief Executive of Scottish Widows, who said in a recent interview with the Sunday Herald that “SWIP have had a variable performance on equities.”. That is the understatement of the year.
Historical Underperformance
The 2003 Investment Report on the Lloyds TSB No 1 Pension Fund shows that the value of the scheme’s net assets was £5.738 billion as at 30th June 2003, a decrease of £753 million from the preceding year. In 2003 the overall return on the Scheme’s investments, which are managed by SWIP, fell by 7.3% compared to the WM50 median benchmark that fell by 5.5%. Over the past five years the cumulative annualised return for the No 1 Pension Fund was –1.2% compared to the fund benchmark that fell by 0.2%.
Mark Brown, Assistant General Secretary, said “We accept that the fall in the value of the No 1 and No 2 Funds is not solely related to the performance of SWIP and nor are they the only underperforming fund manager. However, they are the Fund Managers managing our members’ deferred pay and if they are consistently underperforming against a not too demanding benchmark then they must be replaced by Fund Managers who can produce a superior performance.
Such historical underperformance by a Financial Consultant in the Bank would have almost certainly led to their dismissal. But SWIP, with teflonesque qualities, have managed to survive for far too long.”
Trustees Act on Underperformance
LTU has been told that the Trustees of the No 1 and No 2 Pensions Funds have now started to act on SWIP’s underperformance and agreed to move 13% of the SWIP investment portfolio, just over £1 billion, to a number of specialist managers to see how they perform against agreed benchmarks and to then compare that to the performance of SWIP over the same period. In a letter to the Head of Pensions LTU has asked for “… details of the new funds, how much they have each been given, how performance will be measured, by whom and over what period? Also on what basis were the specialist fund managers chosen? Were SWIP involved in the choice of the specialist fund managers?”
LTU will be keeping its members informed of developments.
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