Written by Yally Avrahampour and Mike Young, of The Pensions Archive Trust.

This paper is divided into the following sections:

Introduction

Chronology of Ross Goobey's main initiatives

The contribution of the unpublished papers

Background

The objectives of pension fund investment policy

The objectives of pension fund investment management

The evolution of the pension fund allocation

The intermediate period of investment policy

Relationship with the actuary

Bibliography

Introduction

The Pensions Archive Trust has received documents relating to the early part of the career of George Ross Goobey.  This paper uses the unpublished papers, together with secondary material, to present a more detailed analysis of the specific nature of Ross Goobey's contribution

Ross Goobey, an actuary, was the investment manager at Marine & General Insurance company prior to becoming the first manager of Imperial Tobacco pension fund in 1947.  Previously, the pension scheme, which was incepted in 1929, was managed by the Chief Accountant of Imperial Tobacco and the Company had hired its actuaries, R. Watson & Sons (the largest UK actuarial partnership) to recommend a suitable candidate for the position of pension manager. 

Ross Goobey remained with Imperial Tobacco for the rest of his career, eventually being elected to the board of directors of the company.  He is most commonly associated with the development of equity oriented investment policy within Imperial Tobacco and allocating the entirety of the funds investments to equities.  He is therefore credited with starting the 'cult of equity'. 

In the course of preparing this paper the authors have been struck by haphazard pattern of such publishing of Ross Goobey's opinions as took place.  This leads to saying that his contribution is likely to be far better appreciated if an appropriate collection of relevant material can be made – for instance by the Pensions Archive.

The chronology of Ross Goobey's main initiatives

Possibly the first significant change in policy that Ross Goobey succeeded in putting through was the sale of the 2½% Treasury Stock (otherwise known as "Daltons" after the Chancellor of the Exchequer in the post-war Attlee Government), despite the Fund having to accept a 17% capital loss.  Of course, had the sale been postponed the eventual loss would have been much greater.  From 1949 no further Gilts purchases were made. 

By October 1953 he had penned Notes on Investment Policy for the Pension Fund, the earliest item in the cache of papers [Ross Goobey, G. - (1953a)].  This referred to an already sanctioned increase in the proportion of Ordinary Stocks and raised the possibility of investing wholly in such stocks.  It seems that it was agreed at this time to invest all new money in Ordinary Stock.

Some time in 1954 Imperial took a further step, in that low yielding Gilts were sold and the proceeds invested in Ordinary Stocks.  Ross Goobey mentions this in a January 1955 paper The Effect of the Change in the Investment Policy of the Pension Fund, [Ross Goobey, G. - (1955a)] which also mentions profitable switching of Gilt-edged stocks and underwriting new issues.

A two-page paper dated October 1954 entitled Pension Fund Investments [Ross Goobey, G. - (1954b)] contrasts the investment policy needs of pension funds, as the author saw them, with the prevailing practice of insurance companies.  Although it may have been used internally, it is very similar to material contained in the documents next referred to, suggesting that it was prepared for external or public consumption. 

Ross Goobey mentions that a decision to allocate the entire Imperial Tobacco pension fund to equities was taken after the presentation of a memorandum dated 30th August 1955 [Ross Goobey, G - (1957)].  The 1955 paper does not appear within the existing set of papers.  However, extracts are published in Ellis & Vertin (1989, [Ross Goobey 1955, 1957]).  This publication does not distinguish between the two papers published at different dates, but the editors of this volume could be approached for further information. 

As equities became the preferred asset class for (the greatly expanded) pension funds, with the resulting "reverse yield gap" the Imperial portfolio shifted towards a greater allocation to property.  The need for property resulted from the requirement to achieve a yield that was competitive with that of fixed income securities.  There was also a greater allocation to smaller companies.  Sir James Grigg noted that the Fund's investments 'are largely in the lesser known and smaller companies' (1960). 

The pension fund's holdings in smaller capitalization shares meant that it was frequently a dominant shareholder in such businesses.  Hence Imperial became one of the first to conduct visits to the management of companies in which the pension fund was invested.  Additionally, there were a range of practices conducted with respect to corporate governance issues and particularly with respect to takeovers. 

These later developments are discussed in greater detail below.

The contribution of the unpublished papers:

The bibliography outlines Ross Goobey's published output.  The unpublished papers provide an understanding of how the investment strategy of the Imperial Tobacco pension fund evolved through his intervention in the period covered, i.e. between 1953 and 1957, a critical period in his career as well as being a seminal period for the development of investment policy and actuarial science in the UK. 

Ross Goobey published only a handful of articles and papers, all dating from the 1950s.  Although informative, the fragmentary nature of the previously published material obscures the clarity of thought and elegance of argument used by Ross Goobey.  It also does not permit a close analysis of the development of his ideas with respect to investment policy.  Ross Goobey's position as an actuary working within a pension fund contrasted with that of his professional colleagues.  Disseminating his ideas too widely might be expected to compromise his ability to achieve high returns on the pension fund, particularly where he had the advantage of "first mover".   In contrast, actuaries working within consulting actuarial partnerships and insurance companies were expected to publish within actuarial journals and their status within the profession, and thus ability to source clients, was often linked to such publications. 

As a result, Ross Goobey has therefore been perceived as a practitioner who implemented the ideas of Harold Raynes (for instance) rather than as an actuary that made a contribution to actuarial theory.  These papers provide an outline of Ross Goobey as an individual who combined a variety of influences, such as Raynes work, with emerging work relating to actuarial valuation to create an investment policy that was uniquely suited to developing issues arising within modern management. 

One of the earliest indicators that Ross Goobey was willing to share his insights with the outside world came in 1956.  On November 2nd of that year he addressed a Conference of the Association of Superannuation & Pension Funds (now the National Association of Pension Funds).  Two drafts of his intended remarks headed Pension Fund Investments [Ross Goobey, G - (1956a)] are in the unpublished papers.  Although he annotated one of them as being what he presented to the ASPF, it is clear from the verbatim printed record of the Conference (obtained separately) that he diverged from the second draft, perhaps even making changes on the day itself.  Incidentally, this illustrates the need for the unpublished papers to be considered with relevant material from other sources.

Background

Legislation: -The period of the early to mid 1950s was a tremendously fertile environment in which national pension policy was formulated and later outlined in the National Insurance Act 1959, which introduced an early version of contracting out.  This combining of public sector and private sector pension policy has defined overall pension policy in the UK to date. 

The adoption of modern management techniques: - Tremendous variety of organizational designs was seen, as sponsoring companies were in the process of adopting the multi-divisional structure developed in the US.  Many companies at this time had remained within traditional, family based modes of control, and others were moving to different varieties of management structure.  Within Imperial Tobacco, the largest company by market capitalization in 1948, the company had moved towards the adoption of the multi-divisional form early, after having adopted the holding company structure in the 1930s.  Imperial Tobacco was initially an alliance of around twenty family owned UK tobacco companies in response to a competitive threat from Buck Duke's American Tobacco Company. 

The actuarial profession: - The unity and dominance of the actuarial profession was subject to some pressure, quickly resolved, arising out of the establishment of the Association of Consulting Actuaries in 1953.  This was a period in which increasing theoretical focus on valuation led to reassessment of actuarial techniques.

The objectives of pension fund investment policy

Ross Goobey's generation of actuaries understood that the major actuarial developments relating to the use of statistics and demographics and longevity had been completed and theoretical focus shifted to issues of valuation.  This was a theme of much actuarial work in the 1950s and 1960s and was the central tenet in the seminal paper on matching by Redington (1952:1).  The following quote made by Kenneth Moore, the Chairman of the National Mutual Life Assurance Society regarding the 1956 annual results was filed with the unpublished papers.  'The Society was among the first of the life offices to adopt an active investment policy and to include Ordinary shares in its portfolio.  Looking back over our records, I find that the subject was first referred to at the annual general meeting held in 1922 when the new chairman, Mr. J. M. Keynes (later Lord Keynes) said in effect that the labours of the great actuaries of the nineteenth century had carried actuarial science to the point where great improvements or striking innovations were no longer likely; that life offices must, in the future, stand or fall by the success or failure of their investment policy; and that the widely increased range and choice of investments afforded opportunities for an active policy which had not existed previously.' [Ross Goobey, G (1956)]

Ross Goobey linked the rate of interest used by the actuary to value pension fund liabilities to pension fund investment policy:  'The object of Pension Fund investment is to invest the contributions as they are received at a rate of interest equal to or greater than the rate which the Actuary has assumed in his calculations.' [Ross Goobey, G (1955b)].  Importantly, in the case of the Imperial Tobacco pension fund the rate used to value the liabilities was also the rate of return guaranteed by the sponsor and consequently, in the particular case, it was a very desirable objective to earn at least that rate.  Actually Imperial were very much in the minority in offering a guarantee.

As Ross Goobey put it:  'Our attention need not be focused on the capital side, that is to say, the day to day market value of the capital, but can be concentrated on the income, and our chief concern is to ensure that the average annual income is sufficient to produce a yield calculated on the purchase price equal to or greater than the rate assumed by the Actuary in his calculations.' [Ross Goobey, G. (1955b)].  The yield of the pension fund portfolio assumes central importance with respect to investment policy; 'In a pension fund the market value position is certainly not the prime consideration.  The life blood of a pension fund is the interest earned on the investments, and one is only concerned with the market value insofar as this reflects the improvement in the interest income, which of course it does when a large proportion of ordinary stocks and shares are held.' [Ross Goobey, G. (1955a)].

For Ross Goobey, the chief advantage of equities was the propensity of companies to increase dividend payments, as a result of rising profits.  To combat the perception, at that time, that shares were inherently speculative and risky investments, his argument included the notion of diversification or 'spread' of the equity holdings.  Ross Goobey quoted the analysis conducted by Harold Raynes in arguing that if one held a sufficient spread of equities, then over time the returns would be greater than those achieved by fixed income investments.  Additionally, in an inflationary environment, the value of pension fund liabilities rose as salary levels rose.  Ross Goobey recognized early that inflation would remain a feature of the investment environment and understood the effect this would have in increasing liabilities and falling bond prices.  At this time actuarial valuations were conducted without taking inflation into account.  The effects of inflation were simply reflected in the fact that subsequent valuations began with higher assumptions for starting level salaries.  However, investment strategy had to bear in mind the implications of inflation, in the knowledge that its effects would be reflected in future valuations [Ross Goobey, G. (1954b)].

There were managers investing in equities prior to Ross Goobey.  Sam Clayton, manager of the Rowntrees pension fund in the 1930s and 1940s was one (Hannah 1986:74).  John Maynard Keynes was an early advocate of equity investment as the Chairman of the investment committee of the National Mutual insurance company (Davenport 1975).  However, there were differences between the investment strategies employed by the generation preceding that of George Ross Goobey.  Keynes adopted an 'active investment policy' in which there was an attempt to dynamically manage the allocation to equities by timing purchases and sales of equities to coincide with rising and declining markets (Davenport 1975 ).  This approach is also evident in comments made by Mr. F. Comer, manager of the Rowntree pension fund (Ross Goobey 1956:40). 

In contrast, Ross Goobey's investment strategy was to invest in the asset class that would generate the greatest possible income.  The potential for equities to pay increasing dividends led him to consider equities (with property) as the most suitable asset class and as the only appropriate asset class for pension funds.  Ross Goobey writes; 'There seems little logic, however, in accepting equities at all for inclusion in investment portfolios without being prepared to agree on a policy of 100%.  If one is convinced that they are worth including for the obvious advantages which they possess, then there seems to be no reason why one should not have all of one's investments in the most attractive asset class.'  ([1955, 1957] 1989: 254).  The setting of investment policy did not encompass making asset allocation decisions.  The allocation between equities and property was decided through a comparison of individual investments that were oriented around judgments relating to yield. 

There are several reasons that yield can acquire such a significant role relative to total return, or market value, in a pension fund.  These are outlined by Ross Goobey in a comparison of pension funds with insurance companies and include; the long dated nature of pension fund liabilities, their link with inflation in salary levels, the absence of market based solvency and accounting requirements, the gross yield on income received by pension funds and the small likelihood of having to liquidate investments [Ross Goobey, G. (1954b)].  (See the Appendix.)

The objectives of pension fund investment management

The considerations relating to investment policy outlined above had implications with respect to the selection of securities within the portfolio.  There was evidence of increasing sophistication here.  Ross Goobey focused on the yield of companies' shares, but this was in the context of a successful and continuing business; 'I have been accused of "being interested only in yield", the implication being that the higher the conventionally quoted yield is the more I am attracted to a stock.  This is true to a certain extent, especially when dealing with a Pension Fund, the income of which is free of tax, but I am of course aware that the conventionally quoted yield is based on last year's dividend only, and that the realized yield (and this alone is the yield which we are concerned) depends on the dividends received in the future.  Therefore, with each investment that we make there is a mental appraisal of the chances of last year's dividend being maintained or increased.' [Ross Goobey, G. (1989, [1955, 1957].  The decision to invest in stocks is not solely based on yield, but also on the ability of the underlying company to cover the dividend yield in the foreseeable future.  The selling policy was also oriented around yield so that one would be justified in selling a low yielding bond in order to purchase one with a higher yield or a share with a higher yield (1955b).  The development of new and sophisticated ways of analyzing companies was perhaps particularly marked in later years.  

Another issue with which Ross Goobey had to engage was that of investment style, for instance low yielders or high yielders?, since this had a bearing on the return achieved by the pension fund.  If a growth (low yield) investment strategy was more remunerative than a value oriented (high yield) investment strategy then the entire framework proposed by Ross Goobey was in danger of unraveling.  Amongst the unpublished papers one dated November 25th 1956, Memorandum on Growth Stocks, tackles a point that arose from Imperial's policy of concentrating on Equities that showed an initial yield that was not too low, compared with the yield that had been given up when switching from Gilts, debentures and preference.  Ross Goobey starts by making the good point that not all low-yielders are necessarily growth stocks or, conversely, that a stock standing on a high yield will not show dividend growth.  Not willing to entirely trust the Stock Market, he recommends a case by case study of each company's prospects.  Nevertheless, as it is customary to consider what has happened in the past, he presents a comparison, over the 21 years up to 1956 of the "Blue Chip" FT Index against the higher yielding Moody's Equity Index.  The result in terms of capital appreciation was indecisive, but, of course the latter had provided a consistently greater level of income.  As Ross Goobey points out, an extra 1% pa, duly reinvested, amounts to a considerable sum.  As it happened, the Investors Chronicle had just carried an article by "Candidus" (Harold Wincott) pointing out that the "blue chips" had outperformed the medium yielders over the previous ten years.  Ross Goobey concedes this, the 21 year period that he cited being, in today's parlance, a "game of two halves".  He concludes that, as ever, timing is all-important in investment activity.  It seems that was an appendix to his paper that set forth the results of an investigation into the Fund's own share holdings, but this seems not have survived.

Notable again are the terms in which this analysis is conducted.  Although the comparison is conducted in terms of the investment style that shows greatest appreciation over time, for Ross Goobey this is indicative of the profitability and the thus the ability of companies to pay dividends; 'In mentioning capital appreciation in this connection I am not doing so because I am necessarily interested in capital appreciation as such but merely in so far as capital appreciation might be a measure of the improvement in profits and/or dividends of the company concerned.' [Ross Goobey, G. (1956c)].

One can see therefore that Ross Goobey's achievement was to create a unified and encompassing theory, of considerable elegance and scope, with respect to pension fund investment policy.  The next achievement was to integrate this conception within the developing requirements of sponsoring organizations and in particular create a model of investment that was transposable throughout the pension industry. 

Integration with corporate organization

There are a couple of comments made by Ross Goobey to the effect that the pace of funding of a pension scheme should relate to the relative set of opportunities available to the sponsor and the pension fund (Heywood & Lander 1961:354-355).  Thus pension funds investing in fixed income should be funded more slowly (i.e. more sparsely) than pension funds investing in equities, since the latter could be expected to achieve a rate of return that was competitive with the rate of return earned by the sponsoring company on its own assets.  Moreover, since pension funds investing in equities can select investments from in a variety of sectors, they are able to outperform the sponsoring company, which may be operating in only one sector.  In any event, market levels also influence the rate of return that can be achieved.  The pace of funding should be slower if it then appears likely that the pension fund will not achieve a rate of return that is competitive with that which the sponsoring firm can achieve, for a certain period of time. 

This approach is also evident in comments regarding the need for some flexibility with respect to investment policy.  'During "Daltonian" eras we should avoid investing as far as possible and the recent policy of anticipation will help in this respect.  Although under the terms of the Trust Deed we cannot "lend money to the Company" we can by anticipation or deferment of the Company's acknowledged liabilities to the Pension Fund regulate to a certain extent the investment of Pension Fund monies … During periods of cheap money we might well seek refuge in dated Debentures in the hope that when these come to be redeemed we may then be back on higher interest rates for its re-investment or we might even consider exchanging the Debentures into undated securities (Ordinary shares again perhaps) when conditions are suitable.' [Ross Goobey, G. (1953a)].  Hugh Dalton was Chancellor of the Exchequer in 1946 and issued perpetual government bonds with a 2.5% coupon.  However, all accounts show that Ross Goobey did not himself envision the immediate need for purchases of debt securities rather than equities and there is no doubt that this comment reflects the need to re-assure his trustees as they were moving away from their traditional approach. 

The logical extension of this argument is that the pension fund contributes to the profitability of the sponsoring company, through the quality of management implemented by the pension manager.  The rate of interest used by the actuary in conducting his valuation becomes a benchmark for the management of the pension fund within the sponsoring company.  The actuarial rate of interest becomes the target by which the success of investment strategy is assessed.  Ross Goobey concludes a presentation to the trustees as follows; 'the pension fund has become a profitable part of the company's activities, the annual rate of profit of which, including excess interest and the other activities briefly mentioned above, is running well in excess of ½ million pounds per annum.' [Ross Goobey, G. (1955a)].  Again, the focus is on translating the actuary's interest rate into a target that is operational from a corporate perspective. 

The evolution of the pension funds asset allocation

The unpublished 1955 paper The Effect of the Change in the Investment Policy of the Pension Fund has appendices showing the changing asset allocation of the Imperial fund. [Ross Goobey, G. (1955a, appendix I)].  It enables us to divide the early history into three periods   The first period, between 1933 and 1948, in which the pension fund was managed by the Chief Accountant of Imperial Tobacco, indicates an almost continuous, if gradual, increasing allocation to equities and preference shares and falling allocation to gilts.  By 1948, the year in which the management of the fund passed to Ross Goobey, twenty percent was invested in equities, twenty percent in preference shares and ten percent in corporate fixed income ('debentures').  Half of the pension fund was still invested in gilts. 

The second period, between 1948 and 1952, reflects a static allocation to equities and corporate fixed income, but increased allocation to preference shares and decreased allocation to gilts.  At the end of 1952 the allocation was approximately eleven percent corporate bonds, twenty one percent percent equities, thirty percent gilts and thirty three percent preferred shares.  The remaining balance would likely have been cash.  Interviews have indicated that the initial period of Ross Goobey's career involved a thorough debate with respect to the objections that might be made by different participants to an entirely equity investment policy.  Further, there is a record of comments made by Ross Goobey in the 1950 conference of the Association of Superannuation and Pension Funds regarding equity investment.  This period is therefore one in which the increased allocation to equities proposed by Ross Goobey which was not yet agreed to by the board of trustees was accommodated by an increased allocation to preference shares.  This period was characterized by sideways stock market prices, and falling prices of long term bonds but with gradually increasing dividend yield by listed companies.  These were years of negative returns for the Imperial Tobacco pension fund [Ross Goobey, G. (1955a, appendix II)].  Ross Goobey mentions that after 1949 there were no new purchases of gilts [Ross Goobey, G.  (1955a)].  This was beneficial, as this period generally witnessed post-War inflation and falling long term bonds prices.  Additionally, Ross Goobey mentions that concern was expressed by the trustee board regarding the increased allocation to preference shares and that it had been decided to cease purchase of preference shares so as to bring the fund down to the traditional allocation to preference shares.  One might conjecture that this was around twenty percent and also the allocation at the end of 1948 [Ross Goobey, G. (1953a)]. 

The third period from 1952 to 1955 (the end of the series provided) sees accelerating purchase of equities, and sales of preference shares and gilts, with a static allocation to corporate bonds.  The asset allocation of the pension fund at the end of this period was ten percent gilts, eight percent corporate bonds, twenty seven percent preference shares and forty six percent equities, with the balance in cash.  The recommendation to make a 100% allocation to equities was made by Ross Goobey in 1953 [Ross Goobey, G. (1953a)].  However, this appears to have been rejected by the board of trustees and it is likely that a compromise position was taken, so that the allocation to equities could increase more gradually, i.e. to invest all future cash flow (contributions and income from investments) in equities [Ross Goobey, G. (1953a)].  Ross Goobey makes it clear in the 1953 paper that his preference is to invest the entirety of the pension fund in equities and that he sees this as an intermediate step.  From 1953, and thus some time after having began managing the pension fund, Ross Goobey's strategy began to pay off insofar as the market price of the equities he had purchased began to appreciate.  The decision to allocate 100% of the pension fund to equities, and thus to decrease the holdings in other asset classes was taken in 1955 and confirmed again in 1957 [Ross Goobey, G. (1957, 1989)].  As noted above, the paper dealing with the 30th August 1955 decision to allocate the entire fund to equities is, unfortunately, missing. [The 1955 paper was subsequently deposited with the Pensions Archive when a further significant donation of Ross Goobey papers was made and can be viewed at LMA_4481_A_02_027.]

Debate

A critical factor in the development of the equity investment strategy in the Imperial Tobacco pension fund was its acceptance by Sir James Grigg.  The son of a carpenter, who through scholarships became a senior civil servant, Grigg had been Chairman of the Board of the Inland Revenue and later Secretary of State for War in Churchill's Coalition Government.  Grigg was a non-Executive director of Prudential Assurance Company, the National Provincial Bank and the Distillers Company as well as at Imperial Tobacco.  He was one of the two member investment advisory committee to the Imperial Tobacco board of trustees.  The other member of the committee was the Chief Accountant.  Grigg had sufficient status that his approval of the equity investment strategy proposed by Ross Goobey would be gradually accepted by the board of trustees.  Grigg's directorship at the Prudential Assurance Company, and broader financial experience, would have been instrumental in this regard.

An example of the interaction of the two men is found in an undated (and unpublished) paper, annotated "Copy in Investment Data file Sir James Grigg" entitled Random Thoughts on the Timing of the Exchange from Fixed Interest Securities to Equities. [Ross Goobey, G. (1953b)].  This presumably refers to the 1954 decision to sell debentures and preference shares with a view to investing further in Ordinary shares and property.  It appears that this decision was actually pending at the date of the paper and the author (presumably Ross Goobey) expresses concern about whether it was the right time to actually make the switch.  He comments, "1952 would, of course, have been a wonderful time".

The intermediate period of investment policy

The years 1960 onwards mark a second and maturing phase in Ross Goobey's career.  Whilst we do not have papers relating to this period, the papers relating to the earlier periods enable us to make conjectures about the evolution of the investment policy at this time.  This period is marked by the faithfulness of Ross Goobey to the yield oriented strategy outlined above and by the evolution and increased sophistication of techniques in order to meet a series of new challenges. 

The main challenge at this time derived from the fact that the dividend yield of large capitalization stocks had decreased below that available on fixed income securities.  This placed various strains on Ross Goobey's analysis.  For example, one line of reasoning, put forward by Ross Goobey in favour of a hundred percent allocation to equities no longer held in the new environment; 'It is an established fact that undated securities almost invariably give a higher yield vis-à-vis dated securities.' [Ross Goobey, G. (1953a)]

This is a period that sees consequent evolution with respect to the way in which investment policy is set and with respect to investment management and the selection of holdings.  The portfolio shifts towards a greater allocation of the pension fund to property and to smaller companies.  Sir James Grigg notes that the funds investments 'are largely in the lesser known and smaller companies' (1960).  The pension fund's holdings in smaller capitalization shares entailed that it was frequently a dominant shareholder in such businesses.  The increased sophistication was also evident at this time with respect to investment analysis.  For example, the pension fund became one of the first to conduct visits to the management of companies in which the pension fund was invested.  Additionally, there were a range of practices conducted with respect to corporate governance issues and particularly with respect to takeovers. 

With respect to property, Ross Goobey was not the first to invest in property, but once the need for property became apparent, resulting from the requirement to achieve a yield that is competitive with that achieved by fixed income securities, the pension fund became very active with respect to property investment.  The Imperial Tobacco pension fund established a joint management company with Jack Cotton in the early 1960s (Whitehouse 1964). 

Additionally, the Imperial Tobacco pension fund was involved in establishing one of the first property unit trusts, the Wyvern Property Unit Trust, conjointly with the W & A Gilbey Limited Pension Fund of International Distillers & Vintners Ltd.  This venture may have been established through the intervention of John Gunlake who was the common actuary to both schemes or through Walter Gilbey, who was originally trained at Kleinwort Benson.  Bill Blatch, the W & A Gilbey Ltd Pension Fund Investment Manager was the Managing Director of the unit trust. 

In the early 1980s the Imperial Fund would come to hold over half of the portfolio in property, which was the highest allocation amongst the large pension funds, reflecting the remaining influence of the previous strategy.  Similarly, the first investments in the US by the fund were in property, rather than in equities, because of the low dividend yield associated with US shares. 

When performance measurement was introduced in the early 1970s Ross Goobey and colleagues provided a measure of the yield of the pension fund versus the yield of the FTSE All-Share index. 

Relationship with the actuary

The unpublished papers provide an insight into the developing relationship with Imperial Tobacco's actuary, John Gunlake [Ross Goobey, G. (1954a)].  John Gunlake was the senior partner at R. Watson & Sons and the first consulting actuary to have been elected as the President of the Institute of Actuaries, in 1960-61.  During the Second World War John Gunlake worked as statistical advisor in the Statistics and Intelligence Division of the Ministry of Shipping and attended the Washington, Quebec, Cairo and Yalta conferences as statistical advisor and was awarded the CBE in 1947.  He was a fellow of the Institute of Statistics and was involved in the 1953/4 Philips Committee the 'Commission on the Economic and Financial Problems on the Provision for Old Age' (Martin 1991). 

At the start of the 1950s the actuarial approach to valuation took pension fund assets at cost or market value, whichever was lower.  The liabilities of the pension fund were valued at rates between 3% and 4%.  There was no assessment of the impact of inflation on the liabilities. 

Dated May 19th 1954, we have an unpublished paper entitled The Pension Fund Valuation Rate of Interest [Ross Goobey, G. (1954a)].  This was prompted by the Actuary commencing a quinquennial valuation as at April 30th 1954.  Ross Goobey was evidently not too overawed by his actuary's reputation to point out that that the Fund was earning 5½% and he asked Gunlake what it would take for him to raise his discount rate, which was 4%, thus reducing, at a stroke, the value of the liabilities.  It appears that the response was that the Company would need to raise its guarantee rate.  Ross Goobey speculated that the Company might care to consider going up to 4¼%, but it is not clear whether this happened.  The 1954 discussion remains within the theoretical confines of actuarial approaches preceding the new techniques of valuation that were outlined in Heywood & Lander (1961) and Day & McKelvey (1964).  The difference between the two generations related to approaches to valuation of assets.  As mentioned, the first generation valued assets as book cost or market value, whichever was lower, whilst the following generation valued assets by discounting the future income expected from the assets held by the pension fund.  In fact, Ross Goobey's debate with Gunlake is oriented around the valuation of the liabilities rather than with respect to the assets.  Ross Goobey's point is that the discount rate used by Gunlake to value the liabilities does not reflect the long term rate of return achieved by the pension fund that is investing in equities. 

In 1956, by contrast, in comments made to the Association of Superannuation and Pension Funds, Ross Goobey identifies the actuary's discount rate as an integral part of investment strategy and displays greater confidence with respect to the role played by actuarial valuation within investment strategy. 

BIBLIOGRAPHY

Primary Sources

These primary sources can be found under the London Metropolitan Archive reference code LMA/4481/A/01/001 whilst the digitised images can be found here.

Grigg, Sir James - (1960) 'Notes by Sir James Grigg' 23rd Aug 1960, paper presented to the board of trustees of the Imperial Tobacco pension fund.

Ross Goobey, G. (1953a) 'Notes on investment policy for the pension fund', 5th Oct 1953, paper presented to the board of trustees of the Imperial Tobacco pension fund.

(1953b) 'Random thoughts on the timing of the exchange from fixed interest securities to equities': This paper is undated, but appears to have been written shortly after 1952 and is appended 'copy in investment data file for Sir James Grigg'. 

(1954a) 'The pension fund valuation rate of interest' 19th May 1954, paper presented to the board of trustees of the Imperial Tobacco pension fund.

(1954b) 'Pension fund investments', Oct 1954.  This contrasts the investment policy needs of pension funds and insurance companies.

(1955a) 'The effect of the change in the investment policy of the pension fund' 18th Jan 1955.  Draft of paper presented to the board of trustees of the Imperial Tobacco pension fund.

(1955b) 'Note prepared for Sir James Grigg to endeavour to reassure him why it is not unsound to sell a security at a loss.' July 1955

(1956a) 'Pension fund investments' Second draft of paper given at the Autumn conference of the Association of Superannuation and Pension Funds.  This paper is also undated but can be assumed to date in 1956. 

(1956b) 'Pension fund investments' Paper given at the Autumn conference of the Association of Superannuation and Pension Funds. 

(1956c) 'Memorandum on growth stocks' 28th Nov 1956

(1957) 'Review of investment policy for the pension fund' 4th Jun 1957, draft of paper presented to the board of trustees of the Imperial Tobacco pension fund.

Secondary sources

Davenport, N. (1975) 'Keynes in the City' in Milo Keynes ed. Essays on John Maynard Keynes

Day, J. & McKelvey, K (1964) 'The Treatment of Assets in the Actuarial Valuation of the Pension Fund' British Actuarial Journal Vol. 90:104-147

Hannah, L. (1986) Inventing Retirement: the Development of Occupational Pensions in Britain

Heywood, G. & Lander, M. (1961) 'Pension Fund Valuations in Modern Conditions' Journal of the Institute of Actuaries No. 87:314-370

Martin, J. (1991) 'Memoir: John Henry Gunlake' Journal of the Institute of Actuaries 118, p. 193

Redington, F. (1952) 'Review of the Principles of the Valuation of a Life Office.' Journal of the Institute of Actuaries Vol. 78: 286 – 340

Ross Goobey, A. (1987) The money moguls: the inside story of investment management

Ross Goobey, A. (1992) Bricks and mortals: the dreams of the 80s and the nightmare of the 90s: the inside story of the property world

Ross Goobey, G. (1950) 'Remarks in the Association of Superannuation and Pension Funds Autumn conference, 1950'

(1955c) 'Pension fund investment' Superannuation No. 11, April 1955

(1956d) 'Debate in the Association of Superannuation and Pension Funds Autumn conference, 1956'

(1958) 'A pension fund's policy: an interview with the manager of the Imperial Tobacco Company's pension fund' The Financial Times 8 Dec 1958

(1989, [1955, 1957]) 'Pension fund investment policy, review of investment policy for the pension fund' in Ellis, C. & Vertin, J. eds. (1989) Classics – an investor's anthology

Whitehouse, B. (1964) Partners in property: a history and analysis of the provision of institutional finance for property development

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