BT pulls 8.4 billion pound bond mandate from Hermes
LONDON (Reuters) - The pension scheme of telecoms firm BT said it planned to pull an 8.4 billion pound government bond investment mandate from its asset manager Hermes Investment Management, to save costs.
The mandate loss will see total assets under management at Hermes fall by just under a third to around 21 billion pounds. Hermes was set up in 1983, the year before BT was privatised, to run the BT Pension Scheme (BTPS) but now serves hundreds of other institutional investors.
Despite its large size, the inflation-linked mandate only contributed 3-4 percent of its revenues, Hermes said.
BTPS said in a statement that while Hermes had delivered strong performance for the mandate, investing in cheaper index products that track markets would be more cost effective for the scheme in the long run.
That is particularly important given the scheme's large deficit. In its annual report at the start of 2015 the company put the deficit at 7 billion pounds and said it would pump in an extra 2 billion pounds to help close the gap.
Many pension schemes have already moved to passive investing since the financial crisis, as bond returns were hit by central banks' monetary easing. Schemes have largely withdrawn from active inflation-linked funds to allow them more flexibility to manage their assets and liabilities, for example by using derivatives.
Various other mandates given to Hermes by its parent would be unaffected, Chief Executive Saker Nusseibeh told Reuters, adding that Hermes would continue to manage between 30 percent and 40 percent of BTPS's assets.
Among the funds in which BTPS money would still be invested were actively-managed equity, real estate, infrastructure and private equity funds, as well as public and private credit, Hermes said.
(Reporting by Simon Jessop and Sinead Cruise; Editing by Greg Mahlich)
