Blunt questions, bold results: Turning a pension deficit into surplus.

A successful relationship between pension fund trustees and their investment manager depends on asking blunt questions and demanding clear answers, says Jim Parker, Trustee of the Joy Global Industries Pension Scheme.

“My job on the board of trustee directors is to engender discussion, and if that discussion engenders argument, then that’s good, because we then get to resolve the issues. I don't profess to understand totally all the financial details, but I ask blunt questions,” says Parker.

It’s an approach that has clearly worked well in the relationship between Parker and his fellow trustees and their investment manager, SEI. When SEI was appointed, the scheme was in deficit and struggling to close its funding gap, despite the company investing millions in an attempt to solve the problem. The scheme is now in surplus and considering a buy-out.

Defeating the deficit.

“Before SEI, we were tracking the index, and the fund was going up and down like a yo-yo. It was dissatisfying for the trustees, and the fund was relying on the sponsoring company to put money in,” says Parker.

When Joy Global’s defined benefit pension scheme appointed SEI in May 2013, it faced a circa £300 million solvency shortfall and was 55% funded. SEI implemented customised growth and liability-driven investing (LDI) strategies. The scheme has since outperformed its target returns of 5.2% p.a., achieving returns of 9.8% p.a. and, importantly, with 75% less deficit volatility than the legacy investment arrangement. It is now fully funded on a solvency basis.* 

Closing the funding gap is the most obvious benefit the scheme has enjoyed from its partnership with SEI, but Parker says there were other significant positives, among them the simplicity of centralising investment under one roof. 

“Now SEI looks after our funds totally. Gone are the days when the directors of the pension company went around all these different financial advisers,” Parker says.

SEI’s achievement hasn’t gone unnoticed either. Members of the scheme have expressed heartfelt thanks for the collaborative effort behind the scheme’s continued progress.

Building relationships with all stakeholders.

Closing the funding gap was the main priority. But, Parker says, the trustees did not choose SEI because it made easy promises about performance. Instead, it answered blunt questions with frank answers and provided explanations and education for the trustees to help them understand the potential solutions.

“When SEI looked at what we wanted to do and the parameters we’d set, they told us it couldn’t be done that way. They did not say it could not be done at all, but that we needed to think about it in a different way. The sponsoring company’s chief financial officer really understood what he was looking for and was willing to change the approach based on the ideas SEI brought forward.”

Relations with a sponsoring company are always a critical factor in scheme planning. The original company, Joy Global, had a long history and had been through many changes of ownership and structure before being taken over by Japanese-based multinational Komatsu in 2017.

Parker, a trustee for 27 years, has seen the scheme through many changes to its sponsoring company and says SEI has been a valuable support in educating himself and other trustees, which in turn has enabled them to manage their relationship with the sponsoring company.

Dedicated service from the outset. 

The prospect of dedicated service was another of the main attractions of SEI, Parker says.

“They allocated a person dedicated to our scheme who was our main contact point, and we could pick up the phone anytime we wanted. We also had an identifiable account team straight away, so we knew the people discussing our finances.”

The accessible and hands-on service has continued throughout the relationship, with SEI reporting monthly (and more often when needed) to keep trustees abreast of developments. And communication is rarely more important than when things are not quite running smoothly, such as during the LDI crisis in 2022.

The events of that autumn were dramatic across the pensions sector, but Parker says the experience for the Joy Global pension trustees was “painless.” 

“We had good communications immediately from SEI. We felt we had control of our finances, and we were updated on a weekly basis,” he explains, adding that the same has been true during the market turbulence generated by the early months of the Trump presidency in the US, Parker says.

Of course, even the best investment strategy can’t avoid all the ups and downs of the market, and while the Joy Global pension scheme has not been materially harmed by recent turbulence, Parker says he will be asking lots of questions at the next meeting. And this, Parker says, would be his main piece of advice to other trustees: 

“They need to go to a company like SEI and discuss possible solutions. Like us, they may not know what is available in that marketplace. Always go and talk. And listen. And just like me, ask the blunt questions.”

Important information

*Past performance does not predict future returns. 

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