Life at the top of a pounds 20bn pension pile: Hamish McRae looks at the career of one of the City's leading fund managers

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The Independent Online
IN NOVEMBER 1979 a shift of power happened at Courtaulds, the textile giant. For the first time, the value of the pension fund was greater than that of the company.

The pension fund manager, Alastair Ross Goobey, instead of being an invisible functionary, suddenly noticed that people were paying attention to him. He was a representative of a new barony in the City, a new focus of power.

Now Mr Ross Goobey has just got the top job in the trade, head of Postel Investment Management, which runs the biggest pension funds in the land: the pounds 20bn of British Telecom and Post Office employees.

Even by City standards that is serious money. Twenty years ago running a big pension fund was a decent job by the standards of the financial services industry, but it was not a special one. Managers of company pension funds tended to be paid salaries that fitted in with industry's pay scales, rather than those of the City. The pension fund itself was expected to be competently run, but it was not material to the future of the company. The City's institutional investors in general - the life assurance companies, investment trusts and unit trusts as well as the pension funds - were the sleeping giants of finance. They rarely intervened in company affairs and even more rarely made headlines in the papers.

They still probably intervene less frequently than they should, and the most recent headlines made by a company pension fund have resulted from the scandal of the various funds raided by the late Robert Maxwell. But at least the series of financial scandals of the 1980s and early 1990s has thrown a spotlight on the responsibilities of the fund managers. They need to be competent; they need to be straight.

Alastair Ross Goobey's career is unusual by City standards in three main ways. The first is that he has made his name in an unfashionable corner of the forest; the second, that he has moved backwards and forwards between mainline finance jobs and small entrepreneurial City ventures; the third that he has crossed the barrier both ways between finance and politics.

People with ambitions in the City used to head for the glitz of takeovers or the Euromarkets, not fund management. People who go off to City boutiques rarely go back into the mainstream. And while many former politicians have found themselves good City jobs, and many Tory ministers over the years have had City backgrounds, they usually make only two moves: out of the City to politics and back to make some money before retirement.

There is, perhaps, an easy explanation for Mr Ross Goobey's interest in fund management: it runs in the family. His father, George, was pension fund manager for the Imperial Tobacco Company from 1949 to 1973 and has been credited with inventing the cult of the equity - the big move of pension funds during the 1950s and 1960s out of gilts and into shares. After Cambridge in the 1960s (Footlights with Clive James; played clarinet at his wedding) he did the graduate trainee bit at Kleinworts, but realised that 'the pyramid narrowed very rapidly' and left to join a fringe bank called Hume Holdings.

That was the first of two entrepreneurial flings. Hume was caught in the fringe bank crisis of 1974-5, but it had been cautious with its lending and survived. Mr Ross Goobey left in 1977 for the Courtaulds pension fund. In 1981 he went back to another boutique, Geoffrey Morley and Partners. His aim then was quite simply to make some capital, for he had equity in the firm, an aim partly fulfilled when he left four years later.

Then in 1985 came the first spell in active politics, as special adviser to the then Chancellor Nigel Lawson. The attraction of politics went back to the early 1970s 'when everyone in the City was complaining about politicians, but no one was prepared to do anything'. He served on the economic standing committee of the Bow Group, fought the obligatory hopeless seat in 1979, a seat that happened to be adjacent to Nigel Lawson's. He had helped Lord Lawson in the 1983 election, and was asked afterwards to go and help at the Treasury.

From 1985 to the 1987 election he was special adviser. Then it was back to the City, this time to James Capel as chief investment strategist, then back again to the Treasury, as special adviser to Norman Lamont. That job ended too with the last election, and since then he has been back at James Capel, advising its clients (among other things) to put their money in equities rather than gilts.

Going to Postel is attractive probably because it is doing, rather than advising: 'I always felt I had one more big fund management job in me.' No one should expect dramatic changes from the new man at the top. Policies there are established and will continue. Postel believes in taking an active role as a fund manager, partly for the practical reason that it is so big that its fortunes, or rather the fortunes of its pensioners, are dependent on the underlying performance of British industry and commerce. So anything it can do to improve that performance will benefit its fundholders.

This means Postel is, and will continue to be, against things like over-generous share options for directors; the chairman and the chief executive jobs being combined; and directors aged over 70.

As for the fund management technique, the main unusual feature is what it calls the net zero portfolio. Postel starts from the presumption that it will, by and large, run a portfolio that matches the share index, and that any deviation has to be made explicit.

This is done by making the fund manager borrow money from the funds at a commercial rate of interest to make any investment over and above a company's index-weighting. Or, if the manager wants to make a sale, he or she has to borrow the stock from the main funds, and sell it.

The disadvantage of size is that it is impossible to be nimble - 'you can't swing pounds 20bn about as though it were a few thousand,' Mr Ross Goobey says. The advantage of the Postel structure is that it has trustees that meet monthly and are generally supportive. This is quite different to the relationship in many commercially managed pension funds. There the quarterly meetings tend to take on an adversarial tone, which makes long-term fund management much more difficult.

Like many other people involved in fund management, Mr Ross Goobey notes that the industrialists who make the loudest criticisms of City short-termism are those who take the most aggressive stance with their pension fund managers: they practise precisely the opposite to what they preach.

At any rate, Postel will remain long-termist: because it is so big it has to. The most interesting practical test of Mr Ross Goobey's influence will come in how it allocates new money between gilts and equities in the next couple of years. In December he led a James Capel seminar on investment management, making the firm case for equities over gilts. Not only had equities generally given better returns; the timing of switches of funds' cash flow between the two had in general been poor, he said.

Now that the Government is again an enormous issuer of gilts, will Postel allocate much of its funds to them? Or will Ross Goobey take his own advice of a month ago, or indeed that of his father 30 years ago, and continue the cult of the equity?

For guidance, they might like to mug up on a book on institutional investors, The Money Moguls, written in 1987 by the new chief mogul himself.

(Photograph omitted)

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