The trustees of the British Airways pension schemes have signed a deal with BlackRock that places the investment management company in charge of more than £21bn worth of assets.
Prior to the new partnership, responsibility for managing some £21.5bn of assets for the airline’s two defined benefit schemes, the Airways Pension Scheme and the New Airways Pension Scheme, lay with the in-house British Airways Pension Investment Management Limited.
BA's trustees will retain control of investment strategy and asset allocation, with a dedicated BlackRock team focusing on operational efficiency. This differs from the fiduciary management model that has proved popular with many smaller DB schemes, where managers often take charge of all aspects of the portfolio.
The UK outsourced chief investment officer market has doubled in size in the last four years and it now commands assets of more than £200bn. But there are £1.8tn defined benefit pension assets in the UK, and, given the benefits that can be achieved, we’re expecting to see the market continue to grow substantially
Keira-Marie Ramnath, PwC
The deal, hailed by both parties as a “first of its kind” arrangement because of its scale, will see a team of “BA Pensions professionals” transfer to BlackRock to provide “continuity of key institutional knowledge and the schemes’ strong operational and reporting culture”, according to a joint statement from BA and BlackRock.
The combined team will then “leverage BlackRock’s wider expertise and technology resources to provide unique and exclusive insights for the schemes”.
'Pioneering' model alleviates regulatory costs and burdens
“In recent years, regulation has intensified, operational costs have risen, and investment complexity has increased. As a result, many UK pension schemes are looking externally for investment management capabilities with the scale and resources to take on the challenges,” the joint statement read.
These external drivers have combined with the changing investment needs of the two BA schemes, which have more than 85,000 members between them. The schemes now require “an increased focus on managing investments to provide an income that matches members’ pension benefits”.
BlackRock’s “scale and investment expertise” will help maximise value for members by alleviating costs and introducing “operational efficiencies”, while the transfer of staff from BAPIML and British Airways Pension Services Limited will maintain a degree of continuity that might have been lost in a more traditional transfer of responsibilities.
Roger Maynard, chair of trustee APS and NAPS trustee, said: “This agreement is the necessary next step in the evolution of the schemes as they look to enhance their respective investment strategies, working toward their funding goals.”
“In BlackRock, we have identified an asset manager that will ensure the continued focus on delivering enhanced oversight, investment management and long-term value for the schemes in the interests of our members. We look forward to working with Blackrock in the years ahead.”
Sarah Melvin, head of Blackrock’s UK business, added: “British Airways is an iconic global brand and a leader in its sector. We are honoured to be entrusted to manage the assets of these two important pension schemes through the creation of a bespoke model. We look forward to delivering enhanced investment performance for the ultimate benefit of the schemes’ members.”
The start of a trend?
Keira-Marie Ramnath, pensions asset management outsourcing lead at PwC, which assisted in the formation of the partnership, pointed to a growing trend “among larger pension schemes that want to retain control of investment strategy and asset allocation while benefiting from the operational efficiencies of a single manager”.
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The BA/BlackRock structure “retains some of the best features of an in-house manager, such as a dedicated strategic client team at BlackRock who will focus solely on the BA schemes, and combines these with the efficiency and scale of a large outsourced manager that an entity like BlackRock brings”, she said.
“The UK outsourced chief investment officer market has doubled in size in the last four years and it now commands assets of more than £200bn. But there are £1.8tn defined benefit pension assets in the UK, and, given the benefits that can be achieved, we’re expecting to see the market continue to grow substantially.”
