The Dutch pension fund for Thales, a manufacturer of weapons systems, has ditched NN Investment Partners as its asset manager as returns did not meet expectations for too long a period, the €1.8bn fund said in its annual report.

The pension fund’s assets managed by BlackRock on behalf of the pension fund showed superior performance. The scheme, therefore decided in December 2020 to switch NN IP’s €520m mandate for equities, bonds and real estate to BlackRock, which already managed the bulk of Thales’ assets through discretionary investment funds.

Thales’ annual report does not state by how much the returns made by NN IP lagged the benchmark or BlackRock over the past years. The pension fund declined to provide this information on request.

The annual report does reveal, however, that the Thales pension fund performed 2.3 percentage points better than its benchmark in 2020. The outperformance can be attributed almost entirely to the mandates managed by BlackRock, the pension fund’s director Sander Heemskerk told IPE.

BlackRock offered to lower total costs in exchange for the increase of its mandate with Thales as from 2021. Investment management costs amounted to €4.3m, or 0.26% last year.

Even though Thales is already among the Dutch pension funds with the lowest investment management costs, these will come down by another €1.1m as of this year as a result of the new deal with BlackRock, according to Heemskerk.

The switch from NN IP to BlackRock led to a 0.04% increase in transaction costs, going up from 0.18% to 0.27%. This means that, highly unusually, transaction costs for Thales exceeded investment management costs in 2020.

“We invest mostly in actively managed investment funds. At the start of the coronavirus crisis transaction costs for credits increased temporarily because of lower market liquidity,” explained Heemskerk.

“BlackRock did not trade more than usual, but at a higher cost,” he added.

‘BlackRock is not our fiduciary manager’

Besides managing all investment of Thales pension fund, BlackRock also provides strategic investment advice on the fund’s balance sheet, the LDI portfolio and its interest rate and currency hedging policies.

The asset manager also compiles the reports for regulator DNB on all these matters. In 2020 Thales paid Blackrock €424,000 for all these services, including VAT, that the fund can partly get refunded, according to Heemskerk.

Heemskerk believes that BlackRock’s services to Thales do not constitute fiduciary management, despite the firm offering strategic advice in addition to managing the fund’s investment portfolio.

“The pension fund board designs the investment policy and decides about the instruments and strategies that are used in the portfolio. This happens on the basis of advice provided by the investment commission. BlackRock then proceeds implementing the decisions in the portfolio,” Heemskerk said.

He added: “In my eyes, BlackRock would only be a fiduciary manager if it could take investment decisions without consulting the board, such as selecting benchmark or selecting external asset managers.”

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