Aerion Fund Management, the in-house manager for the UK’s National Grid Pension Scheme, has confirmed it is to be sold to Legal & General Investment Management (LGIM) for an undisclosed sum.
The sale, first reported by IPE last month, will see LGIM take on responsibility for £13bn (€17.8bn) of the fund’s £17bn in assets, covering its equity, fixed income and liability-driven investments (LDI).
Nigel Stapleton, chairman of the trustees at the National Grid fund, admitted that moving away from in-house management of assets had been a “difficult” strategic decision.
“However, the increasing maturity of the scheme and evolution to our investment strategy meant it was a carefully considered decision we could not avoid making,” he said.
Mark Zinkula, LGIM’s chief executive, added that he was delighted the long-term partnership had been agreed.
The deal will see one of the UK’s largest asset managers acquire a 100% stake in Aerion, subject to regulatory approval expected later this year.
In a joint statement, Aerion said it would be able to draw down assets managed by LGIM in the captive mandate to invest in specific active equity strategies.
But it added that drawdowns would primarily be made to fund benefit payments.
“Transfers out would be permitted under certain circumstances and subject to satisfying a minimum fee requirement that the scheme is making to LGIM,” the parties noted.
Any monies transferred to LGIM would be managed on the same terms agreed for the £13bn captive mandate acquired as part of Aerion.
As part of its decision to end in-house management, the pension fund plans to set up an executive office to oversee investment decisions, including the external mandates remaining with managers other than LGIM.
Rob Schreuer, outgoing CIO of Philips Pensioenfonds in the Netherlands, was earlier in the summer announced as the chief executive to oversee the new office.
In addition to the equity, fixed income and LDI portfolios managed directly by Aerion, the in-house manager has to date worked with third-party providers for the National Grid scheme’s 7% exposure to real estate, 3% stake in private equity and select exposure to Pacific ex Japan equities and emerging market shares in EMEA and Latin America, accounting for less than one-sixth of its overall equity exposure.
At the end of June, it had 60% of assets in bonds, 18% equities, 7% undisclosed alternatives, 5% cash and some exposure to private equity and property.
Fenchruch Advisory advised the pension scheme on the sale.