Antony Barker joined Santander in 2012 as director of the global bank’s UK group scheme. Here he tells Sebastian Cheek how working together with industry stakeholders and sourcing off-market deals helped the fund achieve a 17.7% annual return last year.
When you took over as director of the Santander UK Group Pension Scheme in 2012 part of the remit was to amalgamate six legacy schemes of acquired banks into one trust. How has that process gone?Collaboration is something I have been trumpeting for many years. Pension funds need economies of scale and to come up with different ways of doing things, but often people feel they are ceding authority or responsibility in some way. It was about developing a model that made everybody better off, but more importantly it enabled us to leverage information and that is where you start to get real value and improvement in the operational and governance structure. By consolidating we made the pension fund one very big material problem and of a scale where the bank’s board stepped up and said: ‘This is important, we need to manage it’. In the CEO’s report, pensions risk features as one of the top business risks so he gets it. We think we run a daily value at risk (VAR) position of about £100m so we started from a premise that the pension fund was a business division and needed to be managed as such. I even have a specialist team looking at all the VAT recovery areas – we recovered about £1.5m last year.
So having a bank as a sponsor helps when it comes to managing the pension scheme?
Just before Christmas I presented everything to the bank’s board on undiscounted terms. So I said: ‘We have given away £26bn in future pension promises, I have £10bn of assets today and £1.5bn of future company contributions promised over the next 10 years, so somehow I have to make up about £15bn through investment gains unless you are going to write me a cheque’.
We have just declared profits of about £1.4bn so that is not going to happen, but it was useful explaining to the board we needed to take investment risk, albeit it in a very controlled fashion, and we are very sensitive to what we hedge and how we hedge it. We are not interested in diversifying just for the sake of it and I’ve a lot of sympathy with Warren Buffett’s argument: ‘you do put all your eggs in one basket, but you watch the basket very carefully’.
How have you been able to leverage information in the investment process?
In the same way I like to join up with other pension schemes I like to join up with asset managers. For example, I met recently with one of our real estate team who has had meetings with one of our venture capital (VC) managers and we recently had them all in for a brainstorming session on various ideas in the agriculture space. We are finding ways of making ideas better, particularly where there is not an obvious investable vehicle. Ideas are largely originated by the central pensions unit, but I get a lot of ideas from the bank’s senior management because of their black book of
contacts, as well as from members of the investment bank, infrastructure and corporate banking teams. There are a lot of people with their eyes open to opportunities and even if it is not directly their business line they are very quick at forwarding ideas on.
Does this allow you to be nimble when it comes to investing in these opportunities?
A good example would be our purchase of the Manchester Arena in August 2013 as part of our liability-hedging portfolio of property. We heard about the idea on the Friday, threw about 30 surveyors in on the Monday and engaged a former CFO of one of the main global arena operators in the world who went through the existing business plan and told us all the things that
could be done on top.
Comments