BA Pensions have announced the outsourcing of their investment arm, BA Pensions Investment Management Ltd (BAPIML) to BlackRock, with effect from 1st June 2021. This means that BlackRock becomes the outsourced chief investment officer (OCIO) for around £21.5 billion of its pension schemes’ assets.
The Investment management function and staff transfer across to Blackrock, while the administration staff transfers across to BA Pensions to manage the relationship between BA Pensions and BlackRock. ABAP understands that members could be unsettled by this announcement coming out of the blue. There will have been considerable work going on behind the scenes subject to commercial confidentiality. Members should be reassured that BA Pensions remains the administrator of both schemes and no change is being made to pension benefits paid to members now or in the future.
Pension investment management is becoming a highly regulated and costly activity and many pension schemes are looking to outsource this to organizations like BlackRock who have the necessary capabilities to achieve economies of scale in this field. The extensive investment de-risking that both schemes are undertaking makes retaining an in-house investment team more challenging, as the opportunities for high-performing investment managers to make lucrative but more risky investments become fewer. Transferring to BlackRock means their skills remain available to BA Pensions and their careers can develop.
The funding landscape of our schemes is changing too. £5.3bn of APS assets are backed by insurance buy-ins from Legal & General Assurance Society and Rothesay Life. The closure of NAPS to future accrual has removed BA employer and employee contributions as a source of income and NAPS is now very much reliant on its investment income, which also needs to be assured and secured for the future. From an ABAP perspective, it looks like a sound move to place the schemes’ assets alongside others managed by BlackRock (who hold an estimated $8.67trn assets under management) in order to make greater gains than could be made by BAPIML independently. After all, this is what many of us do with our own savings and investments.
Our former chairman and past APS trustee Captain Mike Post has done some initial investigation and this is his analysis:
“Now that I have had a chance to do some digging, I can confirm that I think the transfer of both APS’s and NAP’s investment management business to BlackRock is a very good thing.
BAPIML (BA Pensions Investment Management Ltd) is/was APS’s and NAPS’s wholly owned in-house investment company. It has performed very well for us over the years and has/had I estimate approximately 25 employees. Most of those employees are equity investment managers on very good salaries and bonuses, as might be expected by such highly skilled people. In recent years it has occupied an office in Percy Street on the Tottenham Court Road which I used to visit regularly when I was a Trustee.
What has changed recently is that APS essentially does not now need the services of equity investment managers since APS investments are now overwhelmingly in insurance policies (e.g. Legal and General) with the balance in bonds. So it makes sense for APS to stop paying for investment expertise it does not need.
NAPS is in a slightly different position but, because it is closed to new members and future accrual, NAPS is on a flight-path to end up with fewer and fewer equity investments over the years which makes BAPIML an unattractive place for equity investment managers to work, the best of whom will leave to go to where their ambition can succeed and they can make their money.
This strategic position was identified by a large financial institution a couple of years ago who made a proposition to the APS and NAPS Trustees. The Trustees accepted the analysis so essentially shopped around to see what other large financial institutions might be prepared to make an offer. BlackRock had not come up with the original proposal but won the competition for the Trustees’ favour. One of the encouraging features of the deal is, I understand, that BlackRock have taken on all but a few of BAPIML’s employees who can continue their equity investment careers, still involved with investing for NAPS, and the few employees who have not transferred to BlackRock have transferred to BA Pension Services to manage the relationship between BlackRock and BA Pensions.
Because this was a sensitive commercial deal, nothing could be made public until it was completed. There is absolutely nothing sinister about the secrecy before the announcement.
The fact that Roger Maynard is now chair of both APS and NAPS is, in my opinion, very reassuring.”
ABAP thanks Mike for his overview of the situation. BA Pensions have offered to answer any questions members might have so we are assembling a list which we will put forward and we’ll publish the answers we get. The letter to scheme members already contains a number of relevant questions and answers.
BA Pension’s press release and NAPS members letter are featured below (the APS & NAPS letters are identical)