The past year has seen the DC pensions industry embark on significant change, with the push towards fewer, larger schemes that can invest in a broader range of assets and deliver better value for members.
Platforms, technology companies and administrators will play a key part in these reforms, delivering the pensions infrastructure that will allow schemes to access a whole range of asset classes cost effectively.
James Finch, chief executive of the platform Mobius Life, says this often overlooked part of the DC landscape will play an increasingly important role. “We are the plumbing for the pensions industry,” Finch says. “It might not sound glamorous, but for clients this is business critical.”
There are a number of platforms operating across the DC market, but Finch says Mobius’s USP is the fact that it is the only independent operator, not owned by an insurer or with links to one particular asset manager. “Most of our key competitors sit within larger organisations. But this independence matters, as it means we can genuinely offer whole of market access. We’re not here to funnel assets into proprietary funds or products,” he says. “Our clients want choice, transparency, and control.”
Mobius operates an open-architecture platform, set up and structured as a unit-linked life insurance company, which Finch says remains the most tax-efficient way to manage pension portfolios.
The platform offers access to 100 asset managers, giving clients access to thousands of products, from ETFs and listed equity and bond funds, as well as newer investment structures focused on private markets.
Mobius was founded 20 years ago. Initially serving the DB market, it has pivoted towards the DC sector, accelerating its growth in recent years.
It now has 100 DC clients, accounting for around 60 per cent of the £31bn of assets administered on the platform. These clients include master trusts, such as NatWest Cushon, Smart Pension and Cheviot Trust, and single-trusts such as AB Foods, Leonardo and UBS.
Accessing private markets
The Mansion House Accord has seen DC schemes pledge to commit significant sums into private markets and productive finance, with a particular focus on UK growth opportunities.
The Government has sought to remove some of the regulatory barriers to investment — allowing performance fees to sit outside the charge cap, and introducing Long Term Asset Funds (LTAFs) to deal with issues around daily pricing. But operational challenges remain, whether around liquidity, transparency, governance and cost control.
Finch says that platforms like Mobius are looking at ways to address some of these challenges. “Our role as a platform isn’t to decide whether trustees or schemes should allocate to private markets,” Finch explains, “but to make allocations operationally viable once the decision has been made.
“We act as a translation layer, taking complex assets and translating them into a single daily unit price that works for a DC default.”
Mobius now offers LTAFs but Finch says some clients want other options. “What we’re increasingly working on is onboarding direct private markets managers to the platform, and helping them understand what their products need to look like, in terms of fees and liquidity, to be acceptable to the DC landscape.”
This he describes as “intense and involved” work. “We’re the element between the complexity of private markets and the simplicity of the single unit price for a DC default.”
Finch says the company is working with a number of private market managers looking to innovate in this space. This includes organisations like Future Planet Capital, the British Business Bank, Clearlake, Octopus Energy Generation, Natixis, Muzinich and Aviva Investors.
Tokenisation
One recent innovation where Mobius has taken a lead, is the move towards the ‘tokenisation’ of financial assets. It recently joined Smart Pension, Octopus Energy Generation and tokenisation specialists Ctrl Alt in forming a new body to explore how digital ‘tokens’ of renewable energy assets can be integrated into pension schemes.
Finch says he is excited by the opportunities tokenisation offers the industry. This is the process of creating digital representations of a range of financial assets distributed via ledger technology.
These digital tokens encode ownership rights, valuation data and compliance rules. Finch says this can automate reconciliation, removing the need for brokers and intermediaries. “This should allow for faster, lower cost and lower friction settlements when trading assets,” he says, while also broadening access to complex and illiquid markets, which have historically required larger sums to invest.
“This isn’t a fringe experiment,” Finch explains. “Nor is it innovation for innovation’s sake. It’s a strategic opportunity to deliver tangible benefits to clients, and ultimately pension savers.
“We’re looking to explore how this technology can genuinely lower costs, improve efficiency and help facilitate greater diversification for members.”
He stresses this technology is still developing, particularly when it comes to real assets.
“One of the first assets to be truly tokenised is money market funds, which sit at the opposite end of the scale in terms of liquidity. This has been driven by collateral usage, the ability to move cash instantaneously, which I think is interesting, even in the pensions landscape. With private markets it’s about using this technology to create efficiencies in what is a hard to access asset class.”
Finch points out that this technology raises questions for policymakers, regulators and trustees and providers though, around trust, oversight and systemic resilience. “Trustees are rightly cautious,” he says. “Any new approach has to stand up to scrutiny on governance, risk and value for money.”
Wider adoption requires work across the industry to turn potential into practice. This is one of the reasons he’s joined the Tokenised Renewable Assets Coalition (TRAC), offering the opportunity to work with other specialists in this area.
Operational simplicity
Finch’s own background explains his interest in this new technology. He did not begin his career in the pensions industry, but in the asset management industry, working for JP Morgan. “I started my career in the world of money market funds, as they came over from the US into the UK, and built up this business at JP Morgan, then for BGI (Barclays Global Investors), now part of BlackRock.”
He then worked for a start-up ETF business, Source, subsequently sold to Invesco. “I’ve always been interested in investments, like ETFs, that enable clients to do something quite sophisticated, but through a relatively simple and cost-effective wrapper that can be implemented at scale.”
Finch points out that pensions have historically lagged other parts of the financial services sector when it comes to tech innovation. The asset management industry has been working on tokenisation for a number of years, he says. “But it’s rare to see anyone from the pension landscape at conferences and forums on this issue, be it providers or employee benefits consultants.”
But this is changing, in part due to regulatory pressures, but also as a result of the exponential growth of the DC sector. “The pensions market is now too big not to engage seriously with modern investment and operational solutions,” he says.
Tech developments like tokenisation may happen at pace he says. “Once you start seeing the likes of Larry Fink talking about tokenising all assets that BlackRock owns, I think there starts to be a real opportunity for our industry to start thinking about how it can use this technology to do things better.”
Finch says this is about far more than private markets. Tokenisation of money market funds or equity and bond holdings could help further lower the cost of investing in these assets — important for schemes that are also looking to access more expensive private assets.
Administration challenge
Finch says that platforms like Mobius perform a number of roles, including extensive reporting for clients. This, he says, will become more important for both trustees and EBCs with the adoption of the value for money framework.
“When you look at the master trust world the fee budget for administration remains a relatively small part of their overall costs. The efficiencies of scale mean we can deliver a more cost-effective service for providers.” One area where he says platforms like Mobius can deliver cost savings is by creating blended solutions, often using synthetic structures, which can be deployed within defaults.
“A lot of our work with clients is thinking about how they gain exposure to their core equity and fixed income allocations.” As he points out, most will have a ‘fee budget’, so making savings on core allocations gives scope to invest in higher-charging growth assets with the potential to boost overall performance.
Finch says the forthcoming requirements for master trusts to provide retirement income default solutions will be an opportunity for further innovation. “I’m excited as to what we could do in the decumulation space. On a platform like Mobius you can utilise a broad range of uncorrelated assets, such as infrastructure and private credit. These can be used to address some of the challenges around sequence risk.
“In retirement, avoiding big drawdowns is critical,” he says. “That’s where diversified, uncorrelated assets really matter — but again, they only work if the operational framework is right.”
Consolidation drive
So how does Finch think the Mobius will be affected by the consolidation affecting all parts of the industry. This is likely to see the DC landscape dominated by just a handful of ‘mega funds’ by 2030.
Clearly this is a challenge for platform providers, with fewer clients potentially buying their services, he says. “At Mobius we have to ensure we offer the best solutions.”
He points out that one relative strength is the sole focus on investment administration. “It’s something we are absolutely obsessive about,” he says. “As we become more sophisticated we can develop new things, that other providers maybe aren’t as interested in investing in, as their platform isn’t the main focus of their organisation.
“If we can build our capabilities, technology and connections to be as efficient as possible then consolidation is not something to be afraid of.”
He points out that businesses have to be responsive to market changes – as Mobius has in the past with the shift from DB to DC.
He adds that the company is looking at expanding further into the Sipp and wealth management sector, pointing out that few offer unit-linked life wrappers, despite the tax efficiencies this offers in terms of not paying withholding tax.
“As schemes get bigger, they need best-in-class components rather than vertically integrated, one-size-fits-all solutions,” he says. “Specialist providers like Mobius have a real role to play.”
He says the comparison with utility infrastructure is apt — this infrastructure is largely invisible when it works well, but acutely apparent when its fails. In a pensions system grappling with scale, complexity and rising expectations of both members and regulators, this plumbing may prove to be one of the most important parts
of all.
As Finch puts it: “Our clients want to focus on investment strategy and member outcomes — not administration. If we can make the complex simple and reliable, we’ve done our job.”
