Aligning the dialogue between impact managers and pension funds

Karen Shackleton, Head of Pensions for Purpose, discusses the different perspectives of impact managers and pension funds and the importance of aligning the dialogue.

This content is restricted to Affiliate members only. Please login or join to view.


As an independent investment adviser to local authority pension funds, and a non-executive director of a social impact manager, I was recently invited to join a working party on social investments. The debate focussed on changes that might encourage more capital to be allocated to these investments and involved conversations with pension fund trustees.

More recently, I celebrated the launch of a nine-month project  Aimed specifically at pension funds, the aim of this collaborative, web-based initiative is to promote pension funds’ understanding of impact investment by collectively sharing news stories, blogs, case studies, academic research and thought leadership papers on impact topics. It is one of the first times that the fund management community (usually a highly competitive industry) has worked collaboratively for the greater good by sharing their research in this way.

Both these initiatives have involved me in detailed dialogue with pension fund investors and social investment providers. It has been a fascinating and informative journey, but two things stood out as my conversations progressed:

Those involved in social investment are passionate about the impact their work is having.
Those involved in pension funds are passionate about providing the best risk-adjusted return for their members.
I have an image of two groups of people facing each other across a table, but each side not quite understanding the other side’s perspective. How can they make progress, and will they meet in the middle or will one be inclined to retreat to safer home ground before a deal is struck? A hardened pension fund trustee may even be overheard to admit that he/she prefers to invest in sin stocks because of the extra return available…

Preparation and planning – by understanding the priorities facing a pensions trustee, a social investment manager can focus on ticking the right boxes (rather than ticking their own). Any background research of the issues facing the pension fund is important preparation.

For example, is the fund in deficit (so trustees are keeping an eye on interesting growth assets)? Is the fund cashflow negative (so needs a secure income stream)? Are the trustees concerned about inflation (so interested in real assets that can provide some inflation-protection for the liabilities)? Does the investment committee want to diversify equity risk (so looking for assets with a low correlation to equities)? Are the members putting pressure on the trustees to focus more on environmental, social and governance (ESG) issues (so interested in impact-related issues)?

Framing the conversation – by understanding the priorities of the pensions committee, a social investment manager can then assess how to frame their product offering in terms that the trustees can relate to. A homelessness property fund, for example, may provide a secure income stream that is extremely attractive to a cashflow-negative pension fund, at a time when gilt yields are so low. Plus, it has an amazingly positive social impact, what a great story for a trustee to hear.

Be honest but think outside the box – a point that needs clarification, up front, is exactly what the investor really has to give up in order to achieve the social impact on offer (a surprising number of trustees won’t consider social investments because they associate it with concessionary capital such as philanthropy). This is an important conversation because for many trustees there is such a significant emphasis on return. However, if a social investment can diversify equity risk, or offer inflation protection with a greater degree of certainty than other asset classes in the pension fund, or has a high degree of certainty around the return stream, then it may still be attractive to the pension fund even if it has a lower return than alternatives in a similar space but focussed entirely on profit maximisation. It still can contribute in a net positive way, to the pension fund’s total portfolio.

In capturing the trustees’ attention, by talking their language, the advantages of social impact investment can then be conveyed in a positive way, to open and interested ears. Even the trustee who loves sin stocks might open one eye, just slightly, to see what is causing all the excitement…

Learn more here