GLOBAL - State Street Corporation and PensionsFirst Analytics are teaming up to provide State Street's clients with access to PFaroe's online software, to allow trustees and corporates to run real-time diagnostics and testing on defined benefit pension fund risk.
PFA's PFaroe will be promoted to State Street's pension fund clients as the service helps trustees, sponsors and advisers to understand the fund's cash flow position and test investment scenarios on a daily basis.
One of the key difficulties pension fund executives faced during the recent economic crisis was the ability to get up-to-date valuations on assets and understand how changes might affect assets and liabilities if, for example, bond yields rose by 50 basis points. This is even when clients had access to online services from custody providers, such as State Street, detailing regular changes to valuations and counterparty risk.
State Street has itself faced several legal action suits by defined benefit pension funds since the credit crunch surfaced, relating to securities lending and other concerns about the information delivered to clients about their investments.
Pfaroe, meanwhile, was launched in the UK last year to bridge a gap in information delivery as it allows pension funds to run virtually any investment or risk scenario which might affect the pension plan, so officials can be better equipped to tackle problems as they arise or tap investment opportunities. (See earlier IPE story: PensionsFirst adapts to launch 24-hour valuations)
Joe Moody, managing director and head of liability-driven investing State Street Global Advisors, said the aim of the strategic alliance is therefore to introduce existing clients to the PFaroe tools and then allow them to be used via a single platform, through State Street's existing tools.
"People realise they are going to have to be more proactive about managing their way out of the problems they are in," said Moody.
"There is a window of 2-3 years where pension fund officials will act. They can see the decisions being taken, the managers appointed, they will be able to appreciate the risks they are running through the economic cycle. It is in the interests of the corporates and trustees to share this common tool.
He continued: "It drives efficiency for the customer as it makes more information available. We will introduce existing clients to PensionsFirst Analytics, and if they set up they will receive other benefits and be able to use them together on one service," he added.
Benjamin Reid, partner at PensionsFirst Analytics, said its service will remain totally independent of State Street, but is teaming up with State Street in part because of its focus on global pension fund business.
"We see the [defined benefit] issue as being a global issue, concentrated mainly in the US, UK Canada, Japan and the Netherlands. We were clearly looking for a strategic partner to allow us to make the most of the opportunity we have created with PFaroe, and State Street has a global footprint with a strong leaning towards pension funds. It was also the breadth of its products which attracted us," he continued.
Pfaroe is already available to UK pension fund executives but in some cases is already being used on a global scale to assess a company's global pension fund risk and liabilities.
The service is expected to be rolled out to the US market in Q3 2010, closing followed by Canada, said Reid.