The $4.75 billion (£3 billion) UK Merchant Navy Officers Pension Fund has upgraded its relationship with consultant Towers Watson, having appointed the firm as its “delegated chief investment officer”, which is the first such arrangement for the consultant.
The outsourcing of CIO responsibilities by smaller pension funds has been a trend for several years, however, it is unusual for a fund of the Merchant Navy’s size to go down this path.
Towers Watson will not be establishing its own investment vehicles for the fund, but will be charging a basis-points fee for its services. It will be responsible for hiring and firing of managers as well as providing other investment solutions.
William Everard, chairman of the fund’s investment committee, said that in designing the new role, he believed the fund had created a best-in-class governance structure for the efficient management of large, mature pension funds.
The decision followed an extensive review by advisers KPMG which looked at world’s best practice for similar funds.
Andrew Waring, the Merchant Navy fund’s chief executive, said: “Fiduciary management is still evolving in the UK as a number of investment consultants, fund managers and other specialists look to compete in the market. During this process we explored the full range of solutions on offer, but ultimately chose to adopt the delegated CIO model because it encompasses many of the elements of investment governance best practice and should result in the creation of real value for our fund and its members.”
The KPMG review looked to identify best practice in investment governance as defined by a range of criteria: degree of engagement; maximum access to investment tools and solutions (with particular emphasis on LDI, buy-in and other insurance solutions); an integrated view of risk-and-return versus liabilities; and effectiveness and timeliness of decision making and implementation.
Roger Urwin (pictured), Towers Watson’s most senior investment strategist, is the designated investment lead on the account. He said the new role would streamline operational management and make the consultant explicitly accountable as never before.
Towers Watson has been advising the fund in a traditional relationship since 1990. However, the role became “more engaged” in 2008, before the latest step to outsource was considered.
Urwin said: “This is the first of its kind for us. It is an evolution of our implemented consulting approach (Advanced Investment Solutions) and an ideal governance solution for Merchant Navy. At the same time it does establish a governance model which we believe other funds will be interested in adopting.”
Towers Watson has 25 client funds in its implemented consulting service.