Data crunch: Derisking activity picked up in the third quarter of 2021, as bulk annuity transactions reached their highest point of the year.
According to data collected by MandateWire for its Deal Flow Q3 2021 report, there were also a number of fiduciary management appointments in the period, while news filtered through that many of the 56 UK corporate pension funds surveyed in the quarter had spent previous months ramping up their fixed income assets.
MandateWire reported on 21 bulk annuity transactions among UK corporate pension funds over Q3 2021, 17 of which were signed during the quarter. This is the most deals signed in 2021 so far, with seven agreed in the first quarter and 12 in the second quarter.
The volume of buy-in and buyout transactions signed in Q3 was $6.5bn (£4.9bn), which is more than double the volume of $2.7bn tracked in Q2.
The APP is a very significant event in the fund’s lifetime as we move closer to securing our members’ benefits
Chris Martin, ITS
This included three large buy-ins that were worth almost £1bn each. The more than £1bn Legal & General Group UK Pension and Assurance Fund completed a £925m assured payment policy transaction with Legal & General Assurance Society.
Chris Martin, managing director at Independent Trustee Services, and chair of the trustees of the scheme, said that “the APP is a very significant event in the fund’s lifetime as we move closer to securing our members’ benefits”.
Similarly, Phoenix Group entered into a £998m buy-in agreement with its own £2.9bn Pearl Group Staff Pension Scheme. More transactions are expected for this scheme as a series of buy-ins are scheduled to be executed by December 31 2023.
The £3.6bn Kingfisher Pension Scheme also completed a £900m bulk annuity transaction with Aviva Group, which is the third derisking deal for the scheme.
Mandate awards
Four mandates were awarded in Q3 by the pension funds surveyed. These were all fiduciary or outsourced investment management mandates, and two of them were won by Russell Investments.
In September, the £12bn National Grid Pension Scheme confirmed via a joint statement with Russell that it was “in the early stages of implementing an outsourced investment solution” with the manager.
In the same month, the £1.5bn Capita Pension & Life Assurance Scheme selected Russell Investments as its fiduciary manager, commenting that “fiduciary management is expected to give the scheme access to a wide range of investments, typically with lower fees, but with less complexity and time commitment for the trustee”.
The fund may also be hoping that Russell’s appointment will help ease the burden of increased climate-reporting regulations that were introduced earlier this year as part of the Pension Schemes Act 2021, with Andy Wadley, trustee chair, noting that Russell’s expertise in the environmental, social and governance space “will be highly beneficial in helping us meet our investment objectives”.
ESG requirements
As a pension fund with more than £1bn in assets, the Capita Pension & Life Assurance Scheme now has less than a year until it will be subject to new climate-reporting requirements.
The regulations will come into play for schemes with more than £1bn in assets from October 1 2022 and, under them, pension funds will have to put governance arrangements in place for managing climate-related risks and publish a report explaining how they have done so.
For schemes with more than £5bn in assets, the regulations came into force on October 1 2021. As such, the £5bn-plus funds MandateWire tracked over the quarter put ESG concerns front and centre of their investment planning.
For instance, the £32bn Railways Pension Scheme published its roadmap to becoming a net zero investor by 2050 or sooner, while outlining plans to reduce its greenhouse gas emissions by 50 per cent by 2030.
Fiduciary mandates and outsourced investment: Spotting the differences
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The UK’s largest corporate defined benefit pension, the £57.5bn BT Pension Scheme, published its first responsible investment and stewardship report, in which the fund reported that, during 2020, it had altered its core investment principle from “finance first” to “sustainable long-term value creation”. Asset managers are now selected and assessed on their approach to ESG factors, according to the report.
The £19bn BBC Pension Scheme also said it had been developing its approach to climate change in 2021.
Having recognised the opportunities that will arise from the transition to a low-carbon economy, the scheme has made additional investments in renewable energy and recently carried out a climate metrics project to measure carbon emissions in its investments.
