Scheme and Sponsor Background
The client is a multi-sectional £1.3bn1 defined benefit scheme (the Scheme) sponsored by a listed UK company, which is also one of the largest employers in the private sector. With a mind to the future, the Trustees wanted to maintain their robust investment beliefs but also evolve the governance of the Scheme.
The objective was to incorporate some delegation whilst also wishing to retain control via a more advisory relationship over a meaningful portion of the portfolio.
Therefore we needed to create a solution with different levels of delegation, with SEI now as Fiduciary Manager for c. £400 million of assets and advisor across other parts of the portfolio.
The scheme consists of two sections, the trustees required a custom portfolio that met their:
- investment beliefs regarding growth assets which is a strong belief in well selected equities focused on long term earnings generation
- strong belief in finding and sticking with the right managers who have strength in their convictions and are not focused on index benchmarks
- belief in the importance of generating sustainable income to pay benefits and withstand capital drawdowns;
- belief in avoiding expensive hedge fund strategies not embedded in fundamental
- desire for investment strategy to be consistent with the discount rate methodology which is very focused on long term returns, robustness of the asset portfolio to meet benefits as they come due
To facilitate this we designed both a customised portfolio and governance solution with varying levels of delegation for the portfolio. The delegation levels varied both between the sections and within each section:
- 90% of assets – SEI has full discretion to invest assets according to the client’s investment beliefs
- 10% of assets – illiquid property assets held with a legacy manager, on which SEI provides oversight
- 20% of assets – SEI has discretion to invest assets according to the client’s investment beliefs. We have implemented a portfolio of two equity managers and a multi-asset credit manager. We have authority both to change managers and change allocations between managers.
- 80% of assets – advisory relationship where SEI provides oversight over a portfolio of three diversified style equity managers, two multi-asset managers with strong equity pedigrees. The portfolio also includes a segregated property mandate and a legacy (rump) private equity mandate. When SEI became advisor to the Trustees, the Scheme was also able to benefit from preferential fee agreements SEI had in place, due to economies of scale across the wider client base.
As shown, within and across the two sections we have different levels of governance. This custom solution meets the Trustees’ desire to evolve their governance model whilst ensuring they remain true to their investment beliefs and all their bespoke implementation (use of specific segregated mandates) and reporting requirements are met.
We deliver seamless oversight and monitoring across the entire portfolio and monitor risk and funding level on both a holistic and ongoing basis.
End Result – Benefit to the Client:
The Scheme has benefitted in three key areas:
- Diversification – our oversight allowed for the introduction of diverse asset classes to the Scheme, such as: high yield debt, emerging markets debt, and structured credit.
- Access to specialist managers – our global open architecture investment platform and custom approach has given the scheme access to specialist, niche mangers that would otherwise not have been available to them.
- Cost reduction – our global scale meant that we were able to deliver significant cost reduction of manager fees both through:
- Renegotiation of existing fee structures with managers not on the SEI platform
- Bringing the Scheme onto the SEI fee schedule where we have existing relationships
- Introduction of other specialist lower cost, better value, managers
Since on boarding the client in 2017 our ability to customise the Scheme’s governance structure has resulted in overall increased diversification, access to specialised managers, strong income generation and cost savings which have grown to over £1m of savings in manager fees p.a.
Past performance is not a reliable indicator of future results.
1As at end July 2020
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