Brexit’s First Winners: De-riskers | Chief Investment Officer

A £750 million transaction involving the ICI pension indicates that market turmoil post-referendum has opened up attractive pricing for buy-ins and buyouts.

As news rolled in on June 24 of the result of the UK’s referendum on membership of the European Union, in a small office in central London, the team responsible for the ICI Pension Fund were preparing for action.

As government bond prices soared and investors panicked, an opportunity had presented itself: the price of the £11 billion ($14.5 billion) pension’s next buy-in had fallen by £10 million.

Heath Mottram, chief executive of Pensions Secretariat Services which runs the ICI Pension Fund, and his team sealed a £750 million buy-in with Legal & General (L&G) on July 5—just eight working days after the referendum, a record for a deal of this size.

“We needed to move quickly in case this opportunity closed,” said Clive Wellsteed, partner at the pension’s advisors LCP.

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“There is every chance of further market disruption over the coming months given the political environment.”The ICI pension has a series of “umbrella contracts” in place with L&G for various tranches of its liabilities, which Wellsteed said were “specifically designed to facilitate the fund to take advantage of sudden movements in the markets while maintaining the strong contractual terms and robust collateral structures already in place.”

The immediate aftermath of the UK’s referendum was an “excellent opportunity” for pensions in the market for de-risking transactions, according to a bulk annuity market commentary from Aon Hewitt.

“Schemes need to be actively in the market to seize such opportunities,” Aon Hewitt said. “A scheme can engage with the market, obtain competitive quotations, select a preferred insurer, agree terms, and then monitor movements in the insurer’s pricing against an agreed trigger. Subject to appropriate advance planning, the scheme can then transact very quickly when a trigger point is hit.”

L&G’s pricing of bulk annuities is based on corporate bond spreads above UK gilts. These have fallen back since the ICI transaction, but Aon Hewitt said “there is every chance of further market disruption over the coming months given the political environment.”

The ICI transaction was the pension’s ninth since March 2014. That initial deal covered £3.6 billion of liabilities and was split between L&G and fellow UK insurer Prudential. It remains the largest single buy-in or buyout completed in the UK, according to LCP. ICI has now insured £7 billion of its £11 billion of liabilities.

The pension—which provides for more than 55,000 members of the engineering company’s defined benefit plan—won an Innovation Award for its de-risking program at the CIO European Innovation Awards in London in June.

Manny Roman, PIMCO Manny Roman, who will lead PIMCO from November 1.PIMCO has appointed Man Group chief Manny Roman as its next CEO, effective November 1.

Roman will succeed Douglas Hodge, who has led the Newport Beach, California-based company since 2014. Hodge will become managing director and senior advisor, PIMCO said in a statement.

“Manny’s deep understanding of global markets, unique skills in investment management, and appreciation of PIMCO’s macro-based investment process make him the ideal executive to position the firm for long-term success,” said Daniel Ivascyn, PIMCO’s group CIO.

The appointment indicates a shift back towards PIMCO’s traditional core focus on fixed income. In this morning’s statement, PIMCO referred to Roman’s “expertise in fixed income” during his 30-year career in financial services.

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“PIMCO has become the global leader in active management of fixed income by seeking to provide investors with innovative solutions as the global markets change,” said Hodge. “As the asset management industry continues to evolve, Manny will bring new perspectives to PIMCO’s leadership team and add his unique talents to our already successful firm and I look forward to working with him.”

Last year, PIMCO shut down two equity strategies following the resignation of Virginie Maisonneuve from her role as global equities CIO. She went on to launch a boutique consulting firm in October, recruiting four former PIMCO equities specialists.

Roman joined Man Group in 2010 following the fund manager’s acquisition of GLG, and was appointed president in 2012. He became CEO the next year. At GLG Roman was co-CEO for five years, and previously held senior roles at Goldman Sachs.

Man Group announced this morning that Luke Ellis will succeed Roman as its CEO from September 1. Ellis is currently president of the company, which manages $78.6 billion.

PIMCO’s outgoing CEO Hodge was responsible for steering the company through its toughest period following the shock exit of Bill Gross in September 2014, and ex-CEO Mohamed El-Erian a few months earlier. Chief Economist Paul McCulley left the firm in 2015 after working there on-and-off since 1990.

In a separate announcement earlier this week, PIMCO made two additions to its senior portfolio management staff.

Credit Suisse’s Danielle Luk has joined as executive vice president and portfolio manager, specializing in interest rate derivatives. Tiffany Wilding, director of global interest rate research at hedge fund Tudor Investment, will be the firm’s new US economist.

The pair join new hires Gene Frieda and Yacov Arnopolin, whose appointments to PIMCO’s emerging markets team were made public earlier this month. Frieda, global strategist for emerging markets, was previously a partner at Moore Capital Management—another hedge fund—while Arnopolin, a portfolio manager, joined from Goldman Sachs Asset Management.

Ivascyn said Luk’s and Wilding’s hires were examples of the “top industry talent” PIMCO has added to its roster, adding that the firm has hired more than 140 new employees globally so far in 2016.

Reporting by Nick Reeve and Amy Whyte