BP scheme goes ALM
UK - The £18bn (€20.6bn) UK pension fund of oil giant BP will embark on its first asset liability modelling review of scheme investments and funding, Sally Bridgeland, chief executive of PB Pension Trustees, has revealed.
Speaking at the Edhec alternative investment days in London today in a panel on liability and inflation hedging, Bridgeland stressed, however,the BP pension fund still has the capacity and the appetite to take equity risk, despite the current market turmoil.
The 125%-funded scheme in an IAS19 basis, and which has 70,000 members, currently invests 65% in quoted equities, 10% private equity, while the remaining 25% in bonds and property, including a 10% allocation to corporate bonds.
Bridgeland joked: "Even though the oil price has gone down by over $100 a barrel in the last six months, and equities have gone down as well, I didn't take out the hedging insurance offered to me by Lehman's that would cover both eventualities happening at the same time - which of course would have left me with a bit of a problem if I would have had to cover that eventuality."
She added: "The capacity to take risk is not only about the strength of the sponsor's covenant, but also your ability to react if things go horribly wrong all at the same time, both with your sponsor's covenant and also with your investments and funding arrangements that you have in place."
According to Bridgeland, this is dependent on a good in-house team, but also on contingency plans.
She concluded: "I think for those pension funds which haven't got that capacity it is increasingly important to look at the insurance, effectively the up from hedging, accepting that it comes at a cost."
BP Pension Trustees announced in October it had decided to suspend transfers into the BP Pension Fund, affecting all the final salary schemes within the fund.
Bridgeland wrote to members, stating: "The current market volatility means that both the amounts you will receive from your other pension arrangements and the benefits we will grant you could differ significantly from any quotations you have received. As making the decision to transfer is difficult in these circumstances, the Trustee has decided to suspend transfers into the Fund."
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