The trustees of two pension schemes for employees of BAE Systems, the British multinational arms, security, and aerospace company, have outsourced the management of their approximately £23bn UK defined benefit (DB) pension scheme assets to Goldman Sachs Asset Management.
The contract, which is for outsourced chief investment officer (OCIO) services, offers continuity to the trustees of the BAE Systems Pension Scheme and BAE Systems Executive Pension Scheme, who will benefit from the global investment capabilities of Goldman Sachs AM across public and private markets, whilst maintaining the expertise of the existing in-house team, it was announced.
The plans sponsor’s in-house investment management team will join Goldman Sachs AM and continue to provide investment services to both schemes. It is expected that the asset management and team transition to Goldman Sachs AM will take place towards the end of 2023.
Andrew Gallagher, chair of trustees for the BAE Systems schemes, said: “The in-house management team has delivered excellent stewardship of the schemes’ bespoke investment strategies over many years. We are delighted that this agreement with Goldman Sachs Asset Management brings together both the expertise of our in-house team and the full capabilities of Goldman Sachs and we look forward to working together to continue to provide long-term value for our members.”
OCIO services are often known in Europe as fiduciary management which involves the delegation of some, or all, of the day-to-day investment decision-making and implementation, but most importantly, the trustees always retain responsibility for deciding high level investment strategy.
OCIO seeks to deliver the efficiencies of the fiduciary management model but with greater investment control, according to a definition by PwC.
Goldman Sachs AM’s agreement is expected to deliver performance and cost benefits for the schemes through the firm’s greater scale and efficiency. The trustees’ decision to appoint Goldman Sachs AM follows a highly competitive tender process.
Brad Greve, group finance director at BAE Systems, said that the pension funding level has moved from a significant deficit to a surplus.
He added: “As we continue to look at ways to further de-risk pension liabilities, reducing the cost and improving the efficiency of asset management are essential. Goldman Sachs Asset Management will offer both and we’re pleased that our in-house team will have access to the broader career paths available within such a global leader.”
The appointment affirms Goldman Sachs AM’s position as the second largest OCIO manager globally and one of the largest in the UK, with global OCIO assets under supervision of more than £200bn, according to the firm.
The mandate also expands the asset manager’s position in the UK liability driven investing (LDI) and cashflow driven investing (CDI) markets, adding to the approximately £175bn managed by the firm globally in both strategies.
Last year IPE reported on some of the largest OCIO mandates with National Grid UK Pension Scheme selecting Russell Investments for a £13bn mandate and utilities firm Centrica’s pension schemes awarding Schroders Solutions a £10bn contract.
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