BlackRock has launched a protected equity fund for UK pension schemes, offering an alternative approach to managing downside risk while retaining exposure to global equity markets.
The ACS World ESG Insights Protective Strategies Fund is the asset manager’s first protected equity fund on its UK retirement platform. It is designed for defined contribution (DC) pension schemes with members approaching retirement, although BlackRock said it also sees demand from defined benefit (DB) schemes.
The fund combines BlackRock’s World ESG Insights equity strategy with an options-based overlay designed to mitigate the impact of significant equity market declines while retaining long-term growth potential, the firm stated.
Unlike strategies that sell call options to finance downside protection, the fund purchases call options to enhance upside participation without imposing a structural cap on equity market gains.
The launch addresses the challenge of managing sequencing risk as members approach retirement. Traditional de-risking strategies typically reduce equity exposure, potentially limiting future growth and increasing exposure to inflation and longevity risks, BlackRock said.
The underlying equity strategy incorporates sustainability considerations and aims to reduce its carbon emissions intensity score. It is also covered by BlackRock Investment Stewardship’s climate and decarbonization stewardship programme.
The fund is managed by BlackRock’s diversified strategies team, with independent oversight from its risk and quantitative analysis team.
Adam Ryan, head of diversified strategies at BlackRock, said: “A growing range of clients, across both defined contribution and defined benefit pension schemes, and increasingly in wealth, are looking for greater resilience in their equity allocations.
“Traditionally, achieving downside protection often meant limiting participation in equity market gains. Our approach is different. By balancing protection with participation, we are providing clients with greater choice in how they allocate, with a solution designed to manage the impact of market declines without giving up the long-term growth potential of equity markets.”
