On Friday, June 24th, Britain voted to leave the European Union. It’s fair to say this surprised a lot of people (on both sides), including the markets. Falling interest rates, a weaker pound and political uncertainty has left a lot of people feeling on edge.
For those of us responsible for managing pension funds, can it be useful to reflect on the “VUCA” of our time.
Volatility, Uncertainty, Complexity and Ambiguity
Derived from the US military and now used in corporate strategy, VUCA is a term used to describe extreme conditions. For those of us in the world of saving and investments, VUCA refers to:
Financial market volatility; the degree of variation in bond and equity markets.
Inability to predict future changes. For example, what is going to happen post Brexit? It’s impossible to predict anything at this point.
The proliferation and complexity of financial instruments, combined with new rules and regulation, all moving in ways we have never seen before. e.g. Central Clearing
How we are feeling. Brexit has stirred up a lot of emotions. Will bond yields stay low for longer? What will happen with new regulation? Where should we invest? What is the best course of action?
Living in a VUCA world has changed the way we run pension funds. In turn, our current skills and abilities to thrive in such conditions are no longer enough or relevant.
The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic
Post Brexit, we need strategic and critical-thinking skills to counter the effects of VUCA.
Imagine and design a long-term strategy that repairs the pension deficit and improves member security. A common purpose that pulls all stakeholders together and unifies their goals and effort.
Understand the options available to pension funds to reach those goals; through education and hard work, a level of comfort and understanding about complex financial products can be reached in order to implement the opportunities that lead to success.
Have goals, constraints and accountability by using SMART principles in goal setting.
Speed and efficiency in decision-making and implementing action.
Together, these four characteristics can be used to design a better future for pension funds and their members.