Q&A: Louise Howard, Interviewed by Jennifer Pafiti
POMERANTZ MONITOR | JANUARY FEBRUARY 2021
Partner and Head of Client Services Jennifer Pafiti interviewed Louise Howard, the Chief Legal Officer for Universities Superannuation Scheme (Ltd). The USS pension scheme manages over £67 billion on behalf of over 400,000 active and retired academic and academic-related staff from universities in the United Kingdom. USS served as a highly engaged and effective lead plaintiff on behalf of the class in the historic Petrobras settlement, helping achieve a $3 billion recovery for defrauded investors.
Jennifer Pafiti: Please share a little bit about your journey and what led you to your role today at USS.
Louise Howard: I began my professional life as a pensions lawyer. On qualification, it was a toss-up between property finance or pensions and, in the fool-hardiness of youth, I choose the most difficult of the two “so that I’ll never get bored.” I couldn’t have appreciated quite how right that prediction would be! In all my 16 years in private practice, I genuinely do not think I was ever asked the same question twice, and so every new request was a complete greenfield. As for my move to USS, like most good things, it came by chance. Around 2003, “Fiduciary Management” was a rapidly growing new business area being marketed to UK defined benefit pension funds. I found several of my clients approached with differing levels of information about what the trustees of these funds were actually buying into. So that trustees could make informed decisions, I became active on the conference circuit, speaking about how particular fiduciary management models may impact their legal duties. That led to me being approached for the newly created role at USS. I’ll always remember the call as I was on the beach with my young daughter, who had just been stung by a wasp moments before, so when I answered, I think I was probably the most “no-nonsense” version of me!
It was a fantastic opportunity as, even though USS had been established in 1974, it had not had any internal legal support at all until the end of the noughties, and that was then just focused on investment management activity. From 2014 onwards, there was a move to strengthen the control environment in general and broaden the internal legal support to the pensions business in particular. We now have a 15-strong legal team that covers everything from in- vestment legal work to pension fund administration, commercial and contractual work to employment and data protection law. And the rest is history ...
JP: Can you take us to the Car Wash?
LH: The Car Wash is so-called because it was inspired by the car valet business inside my local shopping mall. They have a set of giant posters detailing each of the levels of cleaning you can buy — bronze, silver or gold — each detailing the specific services you would get and, of course, the price you pay for each. I thought to myself that we could categorize the different work we are asked to do, just like the car wash, and then be very clear with our business colleagues what level of engagement they could expect from us. It means we operate transparently and consistently. There are other benefits, of course as well. It can help us plan our resourcing — if the business wants lawyers on more than just a handful of gold standard deals or projects, we will need some extra pairs of hands, or the business might need to prioritize. It’s all very logical, and as such, people can engage with it well, both in the team and in the business.
JP: What is the most important takeaway for institutional investors from the newly revised 2020 U.K. Stewardship Code?
LH: The key takeaway for me is how much further this goes in terms of reach. Asset owners will no longer be able to remain well-meaning but essentially sedentary. The ambit of the Code, now stretching beyond just-listed equities, as well as the granular level of detailed narrative reporting that will be required, represent excellent improvements. But I’d caution that institutional investors should not underestimate the effort that will be involved.
JP: On a related note, what has been the Financial Conduct Authority’s biggest impact on USS?
LH: The Trustee Company’s subsidiary, USS Investment Management Limited, created in 2012, is the entity authorized and regulated by the FCA. It is a special category of firm with a more limited range of permissions than a full scale, multi-client investment manager would have due to having only one client, the Trustee Company. Due to the size of assets under management, USSIM became subject to the new Senior Managers & Certification regime as an “Enhanced Firm.” There are fewer than 1% of firms in that category, and it means that we are subject to the most onerous set of requirements, broadly equivalent to those in force for banks.
A tremendous amount of effort over 12 months went into preparing for the introduction of the new regime, which focusses on senior managers, and a broader population of certification staff, each of whom must be certified as “fit and proper” to perform their role. At the end of that period, we had identified USSIM’s Senior Managers, created a Management Responsibility Map and Statements of Responsibilities, ensuring there were appropriate ‘reasonable steps frameworks’ in place. In addition, we had identified our Certified Persons and prepared for their annual fit and proper assessments and trained all relevant staff on what the regime means for each individual.
JP: Can you speak a little about the effort that goes into the valuation process that the fund is mandated to go through every three years?
LH: It seems a distant memory now, and almost like a fairy tale, but at the start of my career, my work was largely around helping employers access the huge excess reserves that had built up in defined benefits funds as legislation at the time required them to be reduced. Things changed very quickly at the turn of the century, and we started facing deficits in these pension plans. Now UK funds are required by law to undertake a valuation every three years and put in place the contributions revealed by that valuation to be necessary to fund future benefit provision and also fund any deficit concerning historic liabilities. For most plans, this has become an increasingly difficult job, not just because of the inherent uncertainty that comes with trying to price today a benefit that will be paid out many, many years in the future. But we have seen in investment cycles the resulting contribution numbers becoming increasingly painful because of the lack of certainty. The scale of a valuation for a scheme of our size, with close to £70 billion in assets (as of March 2019) and over 400 employers, is immense, and the volume of work and the complexity of the challenges are relentless.
JP: What do you see as the biggest issue facing public pension funds today or in the near future?
LH: It has to be affordability. And I mean for all, sponsors and members. We all still would like the comfort of financial security in the future, but, in my view, with the levels of uncertainty we are facing, that seems an even greater uphill struggle than it has ever in the past. A sobering thought, but we just must keep on doing the best we can for our members.