Sebastian Cheek talks to Tony Broccardo, chief investment officer of the Barclays UK Retirement Fund, about the success of its Oak Pensions Asset Management spin-off
At the tail end of last year the Barclays UK Retirement Fund (BUKRF) launched its own asset management company, Oak Pensions Asset Management (OPAM), to “give more flexibility around in-house investment decisions”. The launch represented the latest phase in the centralisation of BUKRF’s investment management structure, which has gone from strength to strength since 2008.
However, despite what it might look like on the outside, BUKRF chief investment officer Tony Broccardo insists the spin-off is not about to follow in the footsteps of Hermes Fund Managers – a fund manager owned entirely by the BT Pension Scheme which invests funds on behalf of more than 200 clients – and start taking on third-party money or managing funds for other pension schemes.
“It never was and is not our intention today,” said Broccardo about managing third party money. “We want to be 100% aligned to the trustees because they will never be able to find that degree of alignment in the market place.”
Broccardo added as OPAM grows as a company it will not look to shed fund managers. In fact, he said good underlying managers are rare and capital constrained, so OPAM will continue to focus on asset allocation with the team at the centre to be in a position to negotiate with the best managers for their asset allocation expertise.
“We’re not out there wanting to pick individual bonds and stocks – the benefit of that at the centre is marginal. We want good specialists to do that; we have got to continue to focus on the key drivers and make sure we are tailoring the fund to the trustees’ requirements – that is where we add value.”
Similarly, GP asked Broccardo if increasing internal investment management capabilities means OPAM will be less reliant on the services of investment consultants. “We will be doing more at the centre,” admitted Broccardo. “The style we have adopted with the consulting community is we work with them on a specialist basis.”
One example is BUKRF’s close relationship with Russell Investments on the selection of active equity managers. The process involves an alpha/beta split with BUKRF managing the beta side and working with Russell on the selection of long-only equity managers.
“That type of process has delivered good value for us and we will continue to adopt that going forward,” Broccardo said.
Bringing it in-house
Broccardo explained it has taken more than two years for BUKRF to become comfortable with the centralisation concept. The process of centralisation began late in 2008 and into Q1 2009 when BUKRF spent time making sure it centralised the risk management of the fund by working on a projected cash flow and liquidity basis – a strategy, Broccardo said, served the fund very well during the financial crisis.
“By mid-2009 having control of the key drivers at the centre was a good thing to do. We believed the future was going to be more uncertain as we could see some of the big global imbalances were going to take a long time to work out,” he said.
In reaction to this future uncertainty, the fund established a monthly dynamic asset allocation (DAA) meeting with the trustees in addition to the quarterly investment committee meetings – and so began a more centralised and frequent flow of information and a top down approach to management.
Indeed, Broccardo said the DAA meetings “enabled us to make investments in leveraged loans during Q4 2008 at very good prices and we sold a lot of those out during the last eight months”. On the whole, over the past three years the active strategies overseen by BUKRF’s investment team added about £1bn ($1.66bn) to the scheme’s £18.2bn defined benefit portfolio.
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