Royal Mail Pension Plan, London, moved to an OCIO arrangement with BlackRock, with £8.8 billion ($10.8 billion) in assets and investment staff transferring to the money manager.
Three investment staff, including CIO Ian McKnight, moved to BlackRock on Wednesday, Richard Law-Deeks, CEO at the fund and who remains with RMPP, said in an interview. The arrangement followed a competitive procurement process.
The team will continue to manage the pension fund's investments and also benefit from BlackRock's resources.
The move comes ahead of the launch of Royal Mail's collective defined contribution plan, which will replace a defined benefit cash balance plan as well as the postal group's existing DC plan.
Executives had been thinking "strategically" about what the changes would mean for the in-house team and the investment strategy. The trustees wanted to maintain the in-house investment team and the knowledge they have of the sponsoring employer, Mr. Law-Deeks said, and the OCIO model presented the opportunity to retain the team and expertise, and also get the added benefit of technology and risk management expertise that comes with a large manager like BlackRock, he said.
BlackRock already managed the majority of the Royal Mail Pension Plan assets, Mr. Law-Deeks said, so a long-standing relationship was already in place, and BlackRock's previous experience in OCIO arrangements was also an attraction.
The move for Mr. McKnight — who has been involved in the OCIO process "every step of the way" — and his direct reports not only gives them the opportunity to work in the wider BlackRock team, but for the Royal Mail trustees "it reduces key-man risk," Mr. Law-Deeks added.
The key benefit, however, is that the arrangement "ensures continuity and stability for our members and their benefits, and the assets that will be used to pay those benefits," Mr. Law-Deeks said.
The three investment staff are now BlackRock employees, Sarah Melvin, head of BlackRock's U.K. business, confirmed in the same interview. "They've done a fantastic job on the scheme to date. They've delivered a great performance, and we're really looking forward to partnering with them and with Richard, to … manage it through the next leg of the scheme's journey."
Mr. McKnight and the legacy investment team has been incorporated into BlackRock's multiasset solutions function. "This function is fully independent of any other investment team or sales team at BlackRock," with the CIOs' only roles to act as fiduciary to the pension funds that they serve, Ms. Melvin said.
"And that's really important, but at the same time, investment teams sitting in that function have all the benefits of being in BlackRock, so whether that is … the scale we have in trading, or whether it's access to our risk management systems," as well as access to Aladdin, BlackRock's risk analytics and investment platform, and the research capability in terms of the BlackRock Investment Institute.
BlackRock has been hired for a number of OCIO arrangements over recent years, including by General Dynamics Corp. in July to manage $14 billion in assets. In June 2021, the firm landed a $31 billion OCIO deal with British Airways to run the assets of two plans. That deal involved the transfer of BA Pensions staff, including CIO David Stewart and Deputy CIO John St.Hill.
And while the Royal Mail team will focus on its plan for now, "over time, we'd expect that the team would have opportunities to work on other pension schemes in the future as the needs of the fund evolve," Ms. Melvin added.
For Mr. Law-Deeks and remaining RMPP employees, work continues on the plan. Part of the challenge is that, while the plan is well-funded — it was in surplus as of Sept. 25, according to the latest annual report by Royal Mail's parent company International Distributions Services — "we have a very young liability profile." The plan has a lot of active participants, "so that makes it very challenging … A lot of plans now are looking at derisking, buy-in, buyout — that's much more difficult for us. We've got a much longer time horizon than a lot of other plans," Mr. Law-Deeks said.
Royal Mail Pension Plan and trustees also considered a traditional fiduciary management approach — without transferring staff — and partnering with other pension funds, but "it just didn't feel like that would work for us where we were, and it didn't feel like it would … solve our key-man risk," Mr. Law-Deeks added.
The Royal Mail Pension Plan is made up of sections with different asset allocations, including liability-hedging assets.