GlaxoSmithKline’s 6 U.K. plans consolidate fund management

BRENTFORD, England — GlaxoSmith-Kline PLC has pooled the money management of its six U.K. pension plans into a common investment fund with £5.2 billion ($9.2 billion) in defined benefit assets.

GSK trustees this year also intend to begin investing in property for the first time and will put up to 10% of total assets with real estate managers "over the next couple of years," said Roger Emerson, senior vice president, tax and treasury.

The property portfolio will be funded by cutting equities, he said. The plan now invests 68% of assets in equities, 31% in bonds and the remainder in "other assets" including cash, according to GSK's annual report for 2005.

The combined U.K. investment fund was launched in January, after almost a year of reviewing the money managers handling the assets of the six pension plans GSK was operating following previous corporate acquisitions, he said.

While the assets of the plans are pooled, the funds themselves remain separate with their own trustee boards and administration.

Trustees will be taking a more active approach to equity asset allocation, which will be reviewed on a quarterly basis. But strategic changes to the asset mix will be less frequent and are likely to be on a yearly basis, added Mr. Emerson.

Four of the incumbents — UBS Global Asset Management, Legal & General Investment Management Ltd., Merrill Lynch Investment Managers Ltd., and Marathon Asset Management, all of London — were retained.

The bulk of the assets, £3.1 billion, remains passively managed by Legal & General.

The active money managers of the combined investment fund are:

• UBS Global, which previously ran £277 million in U.K. equities and now has a £281 million pan-European equity portfolio;

• Merrill Lynch, which handled £304 million, now has a £321 million U.K. equity mandate;

• Marathon, which previously managed £222 million, now invests £235 million in global equity;

• AllianceBernstein Institutional Investment Management, London, £227 million in global equity;

• Standard Life Investment Ltd., Edinburgh, £282 million in U.K. equities;

• Baillie Gifford & Co., Edinburgh, £313 million in U.K. bonds; and

• PIMCO Europe Ltd., London, £418 million in U.K. bonds.

Firms that lost mandates include Wellington Management International Ltd., London, which managed a £402 million global equity portfolio; Morley Fund Management Ltd., London, which ran £523 million in bonds; JPMorgan Asset Management, London, which had £278 million in global-ex U.K. equities; and Schroder PLC, London, which ran £283 million in bonds.

During the course of last year, GSK also hired ABN AMRO Mellon Global Securities Services BV, London, as its global custodian, replacing Bank of New York, London, and appointed Hewitt Associates LLC, London, as investment consultant, replacing Watson Wyatt Worldwide, Reigate. Watson Wyatt was retained as actuary.

Executives at the U.K. plan are not considering a liability-matching investment program, Mr. Emerson said.

"Our fund is not mature and we have the ability in our corporate balance sheet to withstand interest rate volatility more than other companies," he said. "We take the view that the best long-term match for very long-term liabilities is equities."

GSK reported £1.3 billion in deficits for its U.K. pension plans for the year ended Dec. 31. But up to a quarter of the deficit will likely have disappeared since then because of recent rises in interest rates and improved equity returns, said Mr. Emerson.