(February 9, 2012) — Steering a bank through the financial crisis is a tough enough task, but steering a bank’s pension fund through it could arguably be tougher and now the former head of the HBOS pension fund wants to share his experience and knowledge with others finding themselves adrift in uncertain economic times.
Martin Veasey understands the complexity of the market. He started out working for investment banks in the 1980s straight after his maths degree, and created sophisticated derivative instruments to catch the upwards flow of capital.
His first job was at Savory Milne, which was taken into the Swiss Bank Corporation now part of UBS, from where he toured through Citibank, Warburg, Gartmore Investment Management, and Royal Bank of Scotland.
He jokes that a CV listing such beleaguered institutions may not indicate the finest pedigree, but there is more to a bank’s demise than one man’s coincidence.
Veasey does not conform to the image of the Ferrari-driving, risk-taking ‘spivs’ that have been blamed for the near-collapse of the developed world’s financial system. Tall, softly spoken, (with the mildest of an East-Midlands accent) and friendly, he seems the opposite of the figures that have been played out in the world-wide investment banker-bashing.
This may be as he got out of the ‘sell side’ at the right time by turning into its client before the timebomb ran out of ticks; but he did not escape the turmoil.
Veasey joined HBOS at one of the most turbulent times in the bank’s history – December 2007 – barely six months before a disastrous rights issue – only 8% of newly issued shares were taken up by existing owners – that threw it into the arms of fellow high street chain LloydsTSB.
If a pension scheme needs one thing, it is a strong sponsor covenant and the crumbing HBOS could not provide that to the £9 billion fund.
No longer representing the HBOS scheme – he left in June last year – Veasey is reticent to tarry too long on the subject, but the experience clearly had an effect on him.
“HBOS was fabulous. The trustee board and company needed advice and execution and were willing to try new things,” he says animatedly.
So what now?
“At HBOS we did some really great things, but I wanted to see what I could offer to other companies.
“Pension schemes may just want a pointer about what to do next – I’m really addressing those funds that are not big enough to warrant bringing in a complete in-house team.”
Veasey Associates is the latest venture – a consultancy aimed at schemes with under £5 billion in assets that need the nimbleness of an in-house investment committee, without the overhead cost. Unlike a Mercer, Towers Watson or Aon Hewitt, this new company will take a select number of clients and provide bespoke, personal service.
“Pension funds have to take advice – it’s a legal requirement – and the closer you are to a scheme, the better placed you are to offer advice on asset allocation for example.
“Investment committees need sounding boards to bounce off the ideas they receive from their consultants – most pension funds are not attached to a financial company and many cannot take an informed view on what is being suggested.”
In the post-crisis world of regulatory overload, Veasey says his experience can be turned into practical help for pension funds.
“It is my job to answer the question: ‘What does that mean for us?’ and acting as their in-house specialist, the initial reaction will be more immediate and less expensive than taking generic advice from a large consulting firm that has many hundreds of clients.”
Companies and their pension fund trustee boards need to know what can be done, by when and how, should a market event occur, regulation is altered or the investment landscape changes for better or worse.
“When trustees come to a decision, having someone in the centre of it all – juggling all the balls if you like – makes all the difference.
“It’s that person’s life.”
Dedication indeed.
There is no doubting Veasey’s thirst for the job or his experience of tough times. There is little doubt that there are more tough times ahead.
“2008 was an incredible year. It started with a sense of gloom – there was something horrible brewing but not a lot of people knew what it was.
“It was the same for all financial services, investment banks included, we were looking at counterparty risks and considering who would still be there should the worst happen.”
Veasey said he looked over everything in the HBOS pension fund portfolio, seeing how many shares it held in investment banks – but that did not go far enough.
“We realised there’s more ways of losing money than that – so we started looking into the bonds we held, then the pooled funds, the swaps, which prime brokers we were exposed to directly and indirectly, and then that dreaded word ‘re-hypothecation’ came up.”
This process that started off taking a week at the start of the crisis was whittled down to a matter of hours by the end and Veasey said is still useful analysis for all pension schemes.
“In the UK, in the main, most funds use uncomplex instruments. A certain amount of engineering is necessary, but derivatives should only be used for the right reasons, for hedging out certain risks for example.”
The appetite for derivatives, at least for the moment, looks set to remain subdued – a survey from Mercer in January found that 48% of the largest US pension schemes were not considering using them to derisk their portfolios, something that has been reflected across the Atlantic.
This may be down to companies and their pension boards being fearful of using such perceived-sophisticated instruments, but Veasey is on hand to help – and if he got the HBOS scheme through the first banking crisis, his experience should only make this one easier.