Institutional Asset Manager Newsletter 8.9.23

Outsourcing gets serious

Big news for BAE Systems this week as it switched its DB plans from an in-house investment team to one run by Goldman Sachs Asset Management, in what is the UK’s biggest outsourced chief investment officer (OCIO) mandate.
BAE Systems will pass its GBP23 billion DB plans – along with the current investment team - to GSAM which promises "performance and cost benefits for the schemes through greater scale and efficiency".
GSAM inherits a healthy scheme which was 105 per cent funded as 31 March 2022, but taking on one of the UK’s largest schemes in the biggest OCIO deal the UK has ever seen will invariably garner considerable interest.
If GSAM uses its substantial asset management heft – GBP2.7 trillion assets under management at the last count – and employs what Marc Nachmann, Global Head of Asset & Wealth Management, calls "the extensive and unique capabilities of the business" to "navigate increasingly complex market cycles across public and private markets", then this will likely prove a significant boost not just for the organisation but for the OCIO offering in general.
If GSAM fails, however, the implications will be felt far and wide.
Elsewhere this week we report exclusive research from consultancy Bfinance which has been looking at failings in the transaction cost analysis (TCA) market, inadequacies that are costing investors dear.
For every USD1 billion invested in an active equity portfolio, for example, investors can expect to pay between USD1 million and 1.5 million per annum in transaction costs (10-15bps) – some of which are more visible, and indeed more justified, than others.
Understanding those costs is critical in ensuring optimum performance, but Bfinance says that contrary to regulator efforts to improve analysis, it is still extremely difficult for investors to understand and compare charges.
Bfinance argues that "transaction cost analysis models still need work" and that investors "should not expect asset managers’ disclosures—driven by regulation or otherwise—to produce the transparency that is required for good practice".
This week we also report good news for ESG advocates as a survey from BNP Paribas finds institutional investors are mobilising capital towards investments that will deliver measurable positive impacts alongside financial returns.
BNP Paribas’s ESG Global Survey 2023 reveals 54 per cent of 420 asset owners and managers, hedge funds and private equity firms will employ impact investing in the next two years, up from 45 per cent today.
But challenges remain to ensure impact investing achieves its aims, notably data. Seventy-one per cent of respondents say inconsistent and incomplete ESG data is a significant barrier to the greater adoption of ESG; an increase 17 percentage from 2021.
That data challenges are increasing year on year demonstrates a widespread failure by the industry to harmonise information systems which will make life easier for investors. In the absence of consistent and reliable data sources, investment decision-makers will struggle to make the switch to ESG.
More innovation is needed to assist investors in not only finding suitable sustainable investments but proving their long-term positive impact on portfolio performance.
The Institutional Asset Manager Service Provider Awards, 2023 are currently open.
To nominate now please follow this link.
Gill Wadsworth, Editor
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