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LDI Manager of the Year


The world’s largest fund manager is also a dominant force in UK liability-driven investments with £104 billion in client assets at the end of December 2015, according to consultancy KPMG. However, sitting in third place in terms of client money may not suit the investment behemoth. In its submission, BlackRock said it was “continuously envolving” its range of pooled LDI funds and the firm also runs a range of actively managed LDI funds that deliver “risk-controlled outperformance using a diversified set of strategies”. The company said it has seen growth in this part of its business and has a strong pipeline of opportunities to win further mandates. It was appointed by the £1.7 billion Church of England Investment Fund for Pensions to run its LDI mandate from 2016. In its award entry, BlackRock said: “We believe it is important that our clients stay educated and abreast of market developments and how they will affect the UK defined benefit market.” LDI is a particular area of focus, with the fund manager adding: “For the [LDI trustee] training session held in May 2016, 90% of attendees rated the sessions very good or excellent, with 94% of clients saying they would attend future sessions.”

BMO Global Asset Management

By adding 36 new clients in 2015, BMO’s pooled LDI options have pushed the firm up into third place – based on number of clients – in KPMG’s annual survey of the UK market. The firm claims the democratising of sophisticated and accurate hedging methods, usually only available to large pensions, is a major factor in its success. In October, the firm launched a shorter-profile dynamic LDI fund for the most mature defined benefit pensions, which completed a range that can be blended together for a tailored approach. Additionally, as pension investors want more return in a low-yield environment, BMO developed an innovative active LDI strategy. Unlike traditional active LDI strategies that often rely on duration, or focus on credit and asset swap exposure, this fund targets short- to medium-term tactical positions that add value while not straying too far from benchmark. BMO said in its entry: “We have innovated with the portfolio structure as well as the investment strategy as the portfolio is a synthetic overlay, which can be added to any type of core liability hedging mandate.” Clients receive regular communications, while “tailored and considered” trade ideas are communicated two or three times a year. At the end of 2015, BMO managed £14.2 billion on an LDI basis, according to KPMG.

Insight Investment

That the UK’s second-largest player in LDI gathered more than two thirds of its new assets in 2015 from existing clients is testament to its service, the manager said. However, innovation and clout within the market counts for something, too. Insight’s Government Liquidity Fund, launched in March, effectively matches its clients’ short-term cash holdings with gilts posted from its LDI book. Multiple pensions have already signed up, Insight said, with £500 million in assets already gathered. In a similar vein, Insight is also soon to launch a peer-to-peer liquidity platform to provide alternative sources of liquidity for its clients. In response to additional regulation on derivatives clearing, Insight has reached an agreement with LCH, a major clearing house, to provide liquidity for a number of major clients and is in negotiations with others to provide similar options to their clients. Regarding performance, Insight’s dynamically managed funds “exploit opportunities to reduce costs and optimise the efficiency of liability hedges by taking decisions regarding timing, the yield curve and different hedging instruments”. They have led the majority of client mandates to outperform their benchmarks over the longer term. At the end of 2015, Insight managed £172 billion in LDI, according to KPMG’s survey of the sector.

Legal & General Investment Management

Despite running 45% of the UK’s LDI market, LGIM has shown no sign of resting on its laurels or failing to chase innovation. At the end of 2015, it was responsible for £303.5 billion in pension liabilities, according to KPMG’s survey, and had increased the number of client mandates it managed over the 12 months from 288 to 414. Its pooled mandates increased from 40 to 52 over the same period and, according to its 2016 interim report, it has had “significant LDI and active fixed income inflows”. LGIM was one of the first to offer LDI in its home market and has transported its products to the US, where it has been the first UK manager to secure a derisking mandate. In its 2015 annual report, the company highlighted LDI as a key growth area for its international programme. In 2014, the manager unveiled a glidepath process to segue its LDI clients through to pension buyout by taking advantage of its insurance parent’s ability to write annuity contracts. With an unrivalled LDI client base, LGIM publishes regular communication, including a monthly LDI Wrap, outlining significant developments in global markets and what they mean for investors using the strategy.

River and Mercantile Group

Over the course of 2015, River and Mercantile’s LDI assets grew 31% to £11.8 billion, according to its annual report. The P-Solve business, a specialist in the LDI field that was merged into the asset manager in 2014, has continued to grow and win client favour. According to the KPMG survey, it had the sixth largest asset pile in the sector at the end of 2015. River and Mercantile has the third-highest number of segregated LDI mandates in the UK market, working with more than 80 separate clients, trailing just Insight Investments and LGIM. During 2015, the company took on eight new clients for its LDI strategies, growing the value of pension liabilities covered by £893 million, according to its annual report. “In addition, we continued to see strong flows from existing clients who increased their level of hedging to respond to market and scheme funding levels,” the company said. In 2015, the company brought in five staff for its derivatives team, which encompasses its LDI capabilities, taking its roster to 21.