When Stuart Southall teamed up with a former colleague to found Punter Southall the world of finance was on the cusp of enormous change, he tells David Blackman

Setting up in business on your own is always a gamble. Certainly, if Stuart Southall and Jonathan Punter had wanted an easy life they could have stayed at the-then Mercer Fraser.

Stuart Southall

“We were reasonably well paid. It was a pretty big risk,” says Southall, recalling their decision to set up in business. The pair, then in their early 30s, made their break in 1988, about a year after Duncan C Fraser had been acquired by Mercer.

“The partnership carrot that had been dangled had disappeared, so you felt you had lost something and you were no longer as in charge of your own destiny as you had been before.”

However the move clearly paid off – this year Southall and Punter are celebrating the 25th anniversary of the firm’s foundation. Southall himself has clearly benefited, if the collection of early 20th century etchings that he keeps at his Surrey home is any reflection.

It was easier to set up in business in those days. For example, it was still possible to get a business loan off the local bank manager – in Punter Southall’s case, the Natwest in Piccadilly. The pair also made their move at a good point in the business cycle.

We had the hunger of a new firm that wanted to do this sort of work, and we were prepared to put ourselves out

The late 1980s’ Thatcher boom was in full swing, fuelling the kind of merger and acquisition transactions that Punter and Southall had specialised in.

Southall says: “Actuaries can be sleepy beasts and not necessarily put themselves out during transactions, whereas we had the hunger of a new firm that wanted to do this sort of work, and we were prepared to put ourselves out.

We did valuations on PCs, whereas other companies were wedded to mainframes

“We were prepared to be there at one or two in the morning when a pensions situation came up. The other actuary would be in bed. Then, setting up a company, hey presto there would be a new defined benef t scheme, so you would get the money from the client and a new client.”

Harnessing what was then cutting-edge technology also gave Punter and Southall an edge over the less fleet-of-foot competition.

FACT FILE

Age: 55
Education: King Edward VI School, Birmingham; St John’s College, Cambridge
First job: trainee actuary, Duncan C Fraser and Co
Current role: chairman, Punter Southall Ltd
Other industry roles: immediate past president, Association of Consulting Actuaries; non-executive director, Neptune Asset Management
Family: married with two children.
Outside interests: golf, collecting early 20th century etchings

“We did valuations on PCs, whereas other companies were wedded to mainframes. It enabled us to do things that bit quicker.” Within a few months, the company was already taking on graduate trainees. By the early 1990s, the pair were considering turning business away, at which point recession intervened.

However, the firm survived and thrived to the extent that it is now the fourth largest pensions consultancy in the UK, with investment management, independent trustee and administration arms.

FAST-CHANGING TIMES

The company is a very different beast to the actuarial outfit that Punter and Southall established a quarter of a century ago. Southall chairs the firm’s actuarial business.

The only way to keep revenue and profits growing is to take market share off your competitors

But this part of the market is “stagnant or shrinking”, says Southall. “The only way to keep revenue and profits growing is to take market share off your competitors: it’s a different challenge to that faced by P-Solve,” he adds, referring to the company’s investment management business, which now has £1.6bn worth of assets under management, much of it for the kind of defined contribution clients that didn’t even exist 25 years ago.

We all have conflicts: the key is to manage them and be honest about them

The company also innovated with the launch of its fiduciary management services during the late 2000s. The move attracted criticism from competitors about what they labelled the “irreconcilable” conflicts involved in trying to run a consultancy alongside a fiduciary manager.

“If you are a consultant and a fiduciary manager you have to be honest about it. We all have conflicts: the key is to manage them and be honest about them. If P-Solve are underperforming, they need to be transparent about it,” says Southall.

But Punter Southall gets less flak on the issue now that many of its competitors have piled into the fiduciary management market, he observes. He believes that the fiduciary management market is set for continued “rapid” expansion, including at the small end of the market.

“You get a more sophisticated service by going down the fiduciary route. You spend your entire life training trustees about investment decisions but they’re just not nimble enough,” says Southall, recalling the example of one scheme that tried three times to cut its equity allocation.

“Every time they ran a beauty parade, the market crashed again so they never did it.”

MORE REGULATION

So how has the industry changed in the past quarter of a century? Southall says: “Massively more regulation – some of it kneejerk stuff and some of it quite good, but all of it adding cost.”

The other big change has been the waning appreciation of the value of pensions on company boards.

“There has been a considerable change in employer attitudes. In the pension space, I don’t think that many employers know or understand what they want from pensions. For employers, it’s about costs.”

Steve Webb’s right to look at space in the middle of defined benefit and defined contribution, but the government has got it wrong on timing

He doesn’t hold out much hope for the pensions minister’s attempt to remedy the situation by creating a new ‘defined ambition’ halfway house form of provision. “Steve Webb’s right to look at space in the middle of defined benefit and defined contribution, but the government has got it wrong on timing, they’ve got there too late: you may be trying to revive a corpse. It’s a great shame for people in the private sector.”

However, he admits he is “slightly cynical” about protests by employers about not being able to afford to pump contributions into their pension funds.

“The finance director generally has a five-year plan, which probably involves paying as little as he can get away with into the pension fund. “I haven’t got a lot of sympathy with some of the excuses that get trotted out,” he says.

You think what sort of surplus, what kind of planet are you on

He gives as an example the gripe that paying too much will build up a surplus that the company will never be able to recover if and when buyout occurs. “You think what sort of surplus, what kind of planet are you on?”

The companies in question are usually so far short of buyout that it will never be an issue, argues the Cambridge maths graduate, who sits on the board of governors at his Birmingham secondary school. But he adds that he has “a lot of sympathy” with companies that are supporting a pension scheme where the majority of members are no longer their employees, and some of whom have even left to join the competition.

The real concern on the macro side is that in the private sector we are going to have generations of people who under-provide for their retirement

“One area where the profession might be open to criticism is around longevity. In the days of high interest rates and to some extent higher inflation, people living longer didn’t make that much difference in a financial sense because we were discounting the cash flow at high rates of interest.

“In the low inflation, low interest rate world that we are now in, with longevity increasing it’s massively important.

“The real concern on the macro side is that in the private sector we are going to have generations of people who under-provide for their retirement.”

By co-founding Punter Southall, Stuart Southall has taken control of his own destiny. We can only hope that future generations of pensioners follow his example