SHEFFIELD, England - Money managers are hungrily eyeing the L23.3 billion ($34.4 billion) British Coal Pension Schemes for new mandates now that its six-year contract with Goldman Sachs Asset Management, London, has expired.
"This is definitely one of the biggest mandates coming up this year. There should be quite some fallout," said the head of institutional marketing for a European money manager who asked not to be named.
Goldman Sachs manages about 80% of the plans' assets; it acquired the schemes' internal asset management team in August 1996.
Under the new terms that started when the old contract expired, trustees have to give Goldman Sachs six months' notice if they intend to search for managers for any assets managed by GSAM, said David Morgan, chief executive of the pension plans.
Competing money managers expect trustees of the two plans - the L11.8 billion British Coal Staff Superannuation Scheme and the L11.5 billion Mineworkers Pension Scheme, both in Sheffield - to begin considering diversification of their manager lineup toward the end of this year. But Mr. Morgan said trustees had "no immediate plans" to change. The contract was reviewed in February and trustees decided to retain the status quo. "We have had exceptional performance from GSAM and are very happy," said Mr. Morgan.
However, rival money managers say the firm is likely to lose up to a third of the business now that the coal schemes are free to appoint other managers. The plans' consultant, Watson Wyatt Worldwide, Reigate, leans toward a core/satellite approach using a broader range of managers, including passive managers, said the head of institutional marketing at a U.K. money manager who asked not to be named. Structured alpha managers and specialists in enhanced indexing might be the first to pick up new mandates, he added.
Under terms of the contract, the earliest that trustees would have to give notice of new tenders would be November, but trustees have taken no action so far, he said.
GSAM manages part of the plans' U.K. equity portfolios; the entire international equity allocation, including emerging markets; and the plans' fixed-income portfolio, which consists of U.K. corporate, government and index-linked bonds, said Ted Sotir, co-head of GSAM Europe. The group also runs currency and asset allocation overlays for the plans.
The coal pensions business is one of GSAM's most significant mandates worldwide, said Mr. Sotir. Assets managed for U.K. clients make up L30 billion of the group's L45 billion in assets under management in Europe. Global assets under management are L210 billion.
Mr. Sotir would not speculate on how much could be handed to other managers. He said manager diversification was a concept GSAM supported.
"It's hard to imagine that we will stay with 100% of what we have (with the Coal Pension Schemes) but we believe that we should be a very large manager in their pool of managers. There is no indication that we will lose the entire mandate," he said. The firm has been discussing diversifying the manager lineup with the coal plans for the past three years, he added.
The plans' assets are actively managed, and a number of specialist asset managers are used for "higher risk" and property mandates accounting for about 20% of the plans' combined assets, said Mr. Morgan.
According to Mr. Morgan, the British Coal staff scheme and the mineworkers scheme have identical asset allocation targets. U.K. equities account for 35% of total plan assets; international equities, also 35%; bonds are 15% of assets; private equity accounts for 5%; and real estate, 10%.
Both plans recently retained LaSalle Investment Management, London, as sole manager of the combined L2.6 billion property portfolios. Rothschild Asset Management, London, is responsible for managing both plans' short-term cash requirements.
At the British Coal Staff scheme, Edinburgh Fund Managers, Edinburgh, is responsible for a L214 million U.K. small-cap equity portfolio; Schroder PLC, London, manages a L390 million U.K. small-cap and midcap equity mandate; and Cinven Ltd., London, is lead manager for a L335 million private equity portfolio.
The mineworkers scheme has a similar manager lineup and portfolio sizes as the coal staff plan except that the U.K. small- and medium-cap equity mandate is split equally between Schroder and Fidelity Investments, London.