On June 2, BlackRock announced that it had received a £ 21.5 billion ($ 30.5 billion) CEO assignment from British Airways.
Two things were curious about the deal – the size and the fact that such a large pension fund chose to outsource their investments rather than the other way around.
Ryan Marshall of BlackRock has confirmed that British Airways is currently the company’s largest customer in the UK and one of the largest in the world.
“I don’t know of anything bigger or close to that in the OCIO business,” said one industry expert. Institutional investor…
While the deal size itself is impressive, Marshall, BlackRock’s co-head of multi-asset strategy and solutions, said he expects to see more of these – and believes BlackRock is ready to meet those needs.
“Covid has accelerated many trends,” Marshall said. “This ongoing trend towards multibillion pound / dollar schemes is definitely taking place. I expected him to keep moving forward. ”
According to him, the British Airways team will join BlackRock exclusively to manage the assets of the pension scheme.
So why did the massive pension system decide to outsource at all?
“This agreement is a necessary next step in the evolution of the schemes as they seek to improve their respective investment strategies while working towards their funding goals,” said Roger Maynard, chairman of British Airways’ pension scheme board of trustees, in a statement.
He added that BlackRock “will ensure continued focus on providing improved supervision, investment management and long-term value” for the funds.
BlackRock’s fast growing OCIO business
This mandate is the last for BlackRock OCIO’s business, Marshall said, with $ 250 billion under management as of March 31, 2020, which excludes the deal with British Airwaves and any other new mandates signed since then, Marshall said.
The OCIO division operates as part of the company’s multi-asset strategy, with around 300 employees. In 2018, the company announced in an internal memo that it would increase its pensions and bring in external investment professionals. Institutional investor previously reported.
At the time, Blackrock hired Martin Jagietis, a graduate of Russell Investments, to lead the retirement solutions team for the client portfolio. The company also hired Matthew Weinstein as director of OCIO’s retirement business. Weinstein came from Goldman Sachs Asset Management.
According to Marshall, every BlackRock customer has a COO, but they can also access the company’s services business.
“The constant need to reinvest and invest in technology, risk management systems and to keep pace with changing rules — these costs are not static,” Marshall said. He added that when customers pay “as a percentage of AUM,” costs are more manageable.
Why the British Airways deal makes sense
Industry consultants tend to raise their eyebrows when a large asset manager takes over OCIO’s mandate. They fear there might be hidden costs, especially if the provider invests the assets it manages in their own products.
However, according to these industry observers, the BlackRock OCIO business is best suited to serve corporate retirement clients and not other traditional OCIO clients.
According to Brad Alford, founder of Alpha Capital Management consulting firm Brad Alford, outsourced retirement plans “are very different from endowments, foundations, nonprofits, hospitals, and more.”
Here’s why: “Commitments determine asset allocation,” Alford said. “Glissade and actuaries are also really big players here.”
BlackRock and other asset management providers and OCIO are generally attractive to corporate funds, Alford said. “They’re good at the retirement fund side,” Alford said of BlackRock. “They mostly work with fixed income, so it’s important to have a good bond manager.”
There are difficulties in managing a mandate of this size. “The restriction will be private,” one source said. “You just can’t fill your bucket with venture capital.”
But according to the source, BlackRock may have a solution for that. “BlackRock is trying to do some innovative private equity ideas such as own funds or individual deals,” they said.
“Many of them will be doing asset allocation work, a holistic view of the company,” the source added. “BlackRock would be very capable of that.”