When Richard Williams was named chief investment officer of Railpen in 2018, it was the culmination of a broader shift within the pension system to internalize the investment process and create a team that would be equal to the task. One year in, Railpen has emerged as a leader among asset owners, boasting more efficient operations and consistent returns. The $39 billion pension system, which represents the UK’s railway employees, has also gained a reputation for innovation and has attracted new talent that will usher in Railpen’s next era.
“As a long-term investor, we are able to target significant investment goals,” Williams tells CIO. “It’s clear to us that we won’t be able to achieve those goals by following the crowd, so we have to do things differently and we have to use our competitive advantages.”
In practice, Williams explains, that means that Railpen has worked to align its internal governance structure in such a way that it is known as a responsive and solid counterparty. As a result, the pension system gets access to a broader range of investment opportunities. Williams adds that Railpen continues to engage external managers for some of its alternative and less liquid investments. Being a good counterparty has helped those relationships as well and ensures that the pension system will have access to a better caliber of managers.
Railpen has also opted to collaborate with other asset owners to create new investment vehicles. Last year, Railpen, the Alaska Permanent Fund, the Public Institution for Social Security of Kuwait, and Wafra created a new entity: Capital Constellation. The group put $700 million behind Constellation, which provides investment capital to next-generation private equity and alternatives managers. Wafra, an asset manager, will oversee Constellation and advise on managers Constellation allocates to. Constellation will also provide strategic and operational support to the emerging managers in its portfolio.
Williams says the benefits of collaborations like Constellation are twofold. Constellation can capture the outperformance of first-time fund managers while also sharing the risk of those investments with the other investors in the joint venture. “We’re always looking for ways that we can work with others,” Williams says. “We’ve created an internal culture of good governance and best practices, which we are able to bring as value to our work with others.”
Railpen’s focus on collaboration extends to its internal plans as well. As a consortium of pension plans that represents the entirety of the UK railway system, Williams has to work with a variety of constituencies and ensure that plans are responsive to the unique needs of each group. In January, Railpen brought on Michelle Ostermann to fill the new role of chief fiduciary officer for investments. Williams is working with Ostermann to create efficiencies among the plans so that Railpen’s governance structure remains strong and operations run more smoothly without sacrificing customization within a given plan.Â
Looking ahead, Williams says the goal of his tenure will be to prove the decision to internalize investing was ultimately the right one. “My goal is to create a real sense of pride among our stakeholders in what we’re doing here,” he says.