LONDON - The (pounds) 4.3 billion ($6.84 billion) Imperial Chemicals Industries PLC pension fund has shifted nearly all its assets to external money managers, reflecting growing sophistication of international securities markets.
Rob Margetts, chairman of ICI's trustees, said in a release: "The reason for the change was that it was felt that leading external securities managers, with their larger research base, were better-equipped than an in-house team to deal with the complexity and sophistication of today's global markets."
He added trustees wanted to reduce risk from being tied to a single investment approach.
The move also continues a growing trend in Great Britain and the United States away from internal money management, although changes elsewhere have been made for different reasons. In the most famous example, IBM Corp. decided it didn't belong in the investment management business and is farming out some $8 billion in pension assets.
ICI's decision resulted in one of the biggest money management awards in the United Kingdom in recent years.
Nearly (pounds) 2 billion was awarded to Barclays de Zoete Wedd Investments Ltd. to invest in a U.K. stock index strategy that tracks the Financial Times-Actuaries All-shares index.
In addition, Schroder Investment Management Ltd. and PDFM Ltd. were allocated actively managed global mandates of nearly 1 billion each. The global mandates have higher than average allocations to overseas equities. All of the firms are based in London.
Mercury Asset Management PLC, London, handled the transition of ICI's previous portfolios to the new managers.
Also, Midland Bank PLC has been named as sole global custodian for the fund, replacing Bank of Scotland, Lloyds Bank, Bankers Trust Co. and State Street Bank & Trust Co., all based in London.
The status of ICI's roughly 450 million real estate portfolio still is under review, said Hugh Brown, head of pensions for ICI.
Assets previously were managed by ICI Investment Management Ltd., London. Graham Allen, managing director, will remain in charge of the money management unit, whose staff will shrink to about a dozen from 35 if real estate is retained in-house. Seven individuals are involved in the real estate program.
The change in strategy followed an asset/liability study conducted by Watsons Investment Consultancy, Reigate, England. The study has resulted in the fund's equity allocation being marginally decreased, to about 70% of assets from 75%.
Mr. Brown said the decision last year by Zeneca Ltd.'s pension fund to pull out its (pounds) 1.3 billion fund from ICI's management helped precipitate the review. Zeneca was spun off from ICI in 1993 (see related story, page 18).
He said the growing sophistication of the investment management business and the research facilities needed for overseas investments were the prime reasons behind the change in strategy.
Mr. Brown added that investment performance was not a problem, because the internal team had a superior track record for five- and 10-year periods, although they had underperformed last year.
The move to external management also followed the death last summer of Tom Heyes, ICI's longtime head of investments.
Mr. Brown said Mr. Heyes' death had no impact on the decision. In fact, the review process started while he was still alive, he said. Other sources, however, believe the change would not have occurred if Mr. Heyes had still been in charge.
The changes at ICI Investment Management also led ICI subsidiary Tioxide Group PLC, Billingham, England, to farm out its (pounds) 150 million pension fund.
An asset/liability study has led the Tioxide fund to decrease its equity holdings to 70% from 82%, said Gary Hodgson, pensions manager.
With the help of consultant Sedgwick Noble Lowndes Ltd., Croydon, England, the trustees broke the fund into four pieces. Legal & General Investment Management Ltd., London, was awarded a (pounds) 35 million U.K. stock index portfolio, while Schroder won three separate portfolios: a (Pounds) 35 million actively managed U.K. stock portfolio, a (pounds) 34.5 million overseas equity mandate and a (pounds) 30 million U.K. bond portfolio.
The remainder of the fund still is invested in real estate and index-linked bonds by ICI, but eventually will be withdrawn. While no decision has made on investing the assets, they might be allocated to the fund's equity portfolios, he added.