Michelle Ostermann has a vision for the Pension Protection Fund, the U.K.'s backstop for insolvent companies' pension funds — namely elevating the organization so that it "punches a bit more above its weight.''
The CEO, who joined in April, said it's not about fixing something that's broken. It's more a matter of refining the PPF, she told Pensions & Investments in her first official interview.
"I think we have the potential to be of global caliber across the business — I think there’s a lot of sophistication and so I’m encouraging us to think a little bit bigger and broader in our strategy so that we can undertake a few more best practices that might not just be domestic, but globally,'' she told P&I. And so (I’m) setting a standard, setting a bar for us to be — I want to go so far as saying (we should be) best in the world at what we do,” Ostermann said.
While Ostermann couldn’t yet share details of her vision for the PPF, London, she was able to give teasers, reveal some ambitions, and share her biggest considerations about how she plans to develop the lifeboat for defined benefit plans of insolvent U.K. companies — a remit similar to that of the Pension Benefit Guaranty Corp. in the U.S. The PPF had £32.1 billion ($40.5 billion) in assets as of March 31.
“I have a vision for the PPF that is a more modern version of what we already do,” Ostermann said. The PPF will still be “backstopping the industry, still (be) adding an enormous value; but in a slightly refined way that I think will be even more beneficial to the country, not just to our current members.”
Ostermann was unable to comment in detail on her plans — she and the PPF team are putting the finishing touches to its 2025-2028 strategic plan for release soon, and the U.K. government also this year floated the idea of the PPF taking on a bigger role in pension fund consolidation, which is high on the list of priorities for the U.K. government and Chancellor of the Exchequer Rachel Reeves.
In November, Reeves announced sweeping reforms to the U.K. system, including more consolidation.
A rare beast
One of the difficulties for the PPF is that it’s a rare beast, being both an insurer and a pension fund. When an eligible U.K. business becomes insolvent, the PPF pays compensation to workers who have lost out on their pensions, paying 90% to those under normal retirement age at the point of insolvency.
Plan assets transfer into the PPF — which are used to fund that compensation alongside returns from investment management of the fund and a levy raised on DB funds that's usually paid by the sponsoring employer.
“So, it’s a small universe to compare yourself to. But the caliber of what we built on the pension capabilities is of global caliber.”
Ostermann attributes that quality in part to the transformation the PPF has already undergone on the investment management side. In 2018, PPF CIO Barry Kenneth told P&I about his own vision of bringing the management of certain assets in-house, such as its liability-driven investing program and cash assets. The PPF runs just over 50% of its assets in-house.
Another move to enhance its investment management was to take office space in the city of London — a bigger lure for investment professionals and a better location in terms of accessibility to external managers and parties than the PPF’s head office in Croydon, south London.
“If you look at the most sophisticated (asset owners) in the world, you’ll see that… they set the standard with the ability to manage derivatives, hedging capabilities, full LDI … securities lending, the reverse repo markets (in-house.) All of that is to the sophistication you’d find in a hedge funds,” she said.
“(Kenneth) did it. So, I was in part attracted to the PPF because… in my estimation, the PPF is the Canadian model,” she said, citing its internal management capabilities including in private markets — largely co-investments; its arms-length position from the U.K. government despite its role in backstopping the country’s private DB funds; its sophisticated governance structure with one board and no separate trustees; and that it is nonprofit.
The fund also has “the ability to pay competitively for the most part. So Barry’s team in particular — there are very few in the U.K. that are allowed to pay what we pay to our investment (teams.) It’s not inappropriate, it’s not commercial levels — but it’s also not public level,” she said.
The in-house investment capabilities, coupled with the PPF’s in-house administration platform — the pension fund has consolidated around 1,100 pension funds over the last 20 years — are “enormously leverageable” and scalable, she said.
And she has plenty of experience to draw from, having held roles at Canadian pension funds — she joined the PPF from the Public Sector Pension Investment Board, Montreal, which had C$264.9 billion ($195.6 billion) in assets as of March 31, where she was global head of capital markets and senior vice president. Prior to that she was in the U.K. as managing director at the £34 billion Railpen, London, and before that led the actuarial, communication and client relation teams at the C$250.4 billion British Columbia Investment Management Co., Victoria, Canada.
Ostermann took up the PPF mantle from Oliver Morley, CEO since 2018, who was named CEO of The Money and Pensions Service, a U.K. government-sponsored group that aims to help people improve their financial well-being and build a more secure future.
Global standing
Her first six months was spent studying the PPF. “I undertook what I call the strategic review of the business — that meant me probing, asking lots of questions, reading, listening — just listening and getting to know people and the board. And getting my head around … what drove them,” Ostermann said.
Now, that six-month period is over and “I had to show up and describe what I had seen and what I suggest we do.”
So, at the PPF’s September board meeting — which was “an instrumental one for me to put that content on paper, be able to convey it and see what the board thought” — Ostermann got unanimous support for the vision she presented.
While details couldn’t be shared yet, she did outline three priorities: the first to maintain the business and preserve what’s exceptional, while painting a vision for the future; the second to do some reorganization and restructuring in a few ways, “maybe overcome some prior woes or things that weren’t quite as efficient as they could be”; and to think about the potential for the PPF to play a bigger and more influential role in the U.K. pension system.
The fund’s next three-year strategic review is due to be published in March.
Another reason she doesn’t want to change too much is the “exceptional employee engagement” at the PPF.
“For me, as my first official role as CEO, I thought ‘what better place to start?’ The hardest part of leadership in general is getting people to want to be there.” So she’ll be mindful of keeping that feeling among the PPF's 450 employees.
Ostermann’s background stands her in good stead, in particular in the U.K., where the new Labour government has been studying Canadian pension funds in particular as inspiration for its overhaul of the U.K. retirement system — with a big focus on the effective and efficient investment of large pools of assets and the importance of attracting the country’s retirement plans to invest in productive assets.
And that also plays to another focus close to Ostermann’s heart — the role of the asset owner in the “economy and society.”
The idea of an “asset owner … is a concept that I think is ripe to be leveraged through all this talk of consolidation and productive finance. These two itches can be scratched by leveraging these asset owner pools and ourselves, and USS and NEST,” she said, referring to the U.K.’s largest corporate DB plan Universities Superannuation Scheme, London, with £77.9 billion in assets, and National Employment Savings Trust, London, a defined contribution multiemployer plan with £45.3 billion in assets.
Leveraging her experience
The concept of the asset owner and connecting pools of capital with the economy and society was also the subject of Ostermann’s presentation at the P&I WorldPensionSummit 2024 conference in The Hague, Nov. 5-7, 2024. In her keynote, Ostermann discussed the role asset owners play in adding value to participants, the economy and society, drawing on her experience at pension funds and also as chair of the International Centre for Pension Management.
Her various roles across the retirement and insurance industry have each taught her something that she’s bringing to her role at the PPF, she said. Her time at the Canadian pension funds gave her a real appreciation of fiduciary responsibility. At PSP, for example, about half of the balance sheet came under her team.
The Railpen experience “really taught me the importance of governance.”
Her ICPM role means she gets to “connect the dots between various systems, understand the nature of it, but more importantly the successes. There are best practices that are portable.”
Early in her career, she worked at insurance companies, which gave her an appreciation for who the end-investor is.
And “this (the PPF) really is an amalgam of all that — stakeholder, working with government, leading 450 people,” she said.
While she misses investing, she doesn’t “miss having the daily obligation to follow markets and explain markets vs. why we’re investing. We are a long-term, patient investor — I shouldn’t probably be looking daily. But you have no choice but to — you’re being held to account, and your performance over the long run will matter on what you did daily. And so, I like (that) this is a more strategic, top-down view — it suits me well,” Ostermann said.
And she’s clearly ready for the role, responsibility and influence — both as a mentor to other women and in terms of the PPF — she now has.
“I’ve done 30 years in my career … and I thought: this last big gig, I want to do something with a purpose that … mattered,” Ostermann said.
