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IPE special report May 2018

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Transport for London pension fund drops LGIM for BlackRock

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The Transport for London (TfL) Pension Fund has moved the majority of its assets from Legal & General Investment Management (LGIM) to BlackRock as it takes on equities and liability management mandates.

The pension fund had £7.3bn (€10.1bn) in assets at the end of March 2014 and has now signed up for a £1.6bn liability-driven investment (LDI) arrangement with BlackRock and a £2.2bn passive equity portfolio.

Depending on the scheme’s investment performance between March 2014 and present, the US asset manager could be managing more than half of the invested assets.

The pension scheme, which provides retirement benefits to employees of London’s transport network operator, ends a significant arrangement with LGIM on the two deals and adds to a £100m arrangement with BlackRock for renewable energy exposure.

The pair are two of the largest asset managers for UK pension funds, with LGIM having €372.6bn and BlackRock €380.1bn in pensions assets under management, according to figures provided to IPE.

TfL’s decision to shift both mandates from LGIM to BlackRock will come as blow to the UK insurer’s in-house manager, which manages more UK pension fund assets than BlackRock, based significantly on its passive equity and LDI solutions.

The LDI strategy for TfL will see the scheme’s assets hedged against inflation, interest rate and equity volatility, including some exposure to risk assets to generate investment return, BlackRock said.

The TfL pension fund, in addition to its passive equity exposure through BlackRock, also holds close to one-third of its assets in active equity mandates with a range of managers and regions.

It has close to 15% in alternative investments, including private equity, hedge funds and global infrastructure.

Stephen Field, secretary of the TfL Pension Fund, described BlackRock as a key partner and said it would use the investments to “navigate changing market conditions”.

“We have a duty to our fund members to ensure we employ the best investment solutions and consider all possible market risks and opportunities,” he added.

Over the year to March 2014, the pension scheme broke the £7bn mark with a £5.9% investment return – 1.7% above its benchmark.

Andy Tunningley, head of UK strategic institutional clients at BlackRock, said: “These are demanding times for pension funds, and the varied risks they face are best managed by understanding the true drivers of the underlying asset classes.”

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