Royal Mail to seize opportunity in bank debt

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The Royal Mail Pension Plan is to make a 2 per cent (£50m) allocation to private debt as opportunities arise from banks cutting their loan books.
Royal Mail

The newly formed fund has shrunk from £30bn to £2.5bn in value after the government took responsibility for its accrued liabilities.

The loss of its most mature liabilities is allowing the RMPP to take a more adventurous investment approach – at present the fund has a positive cash flow of £500m a year.

A manager is being sought who will have discretion to invest in a range of private debt – some of the opportunities most widely talked up include real estate debt, infrastructure refinancing, company loans and the secondary loan market.

Much of the opportunities arise from banks being forced to give up chunks of their loan books that open them up to most risk.

Gerry Degaute, chief executive of the RMPP, said the fund had spent time studying the opportunities in this space.

“We have a 4 per cent allocation to alternatives within our return-seeking strategy and private debt will fill half of that. This will not be funded from disinvestment in gilts or other liability-driven investment assets.”

As part of other changes at the slimmed-down fund, which offers future accrual in a career average scheme for employees who joined before April 2008, the trustee board will be cut from 11 to nine members.

It will lose one company nominated member and one pensioner trustee. This board will be headed by Joanna Matthews, who joins this month and who currently also chairs the Electricity Supply Pension Scheme, Mirror Group Pension Scheme and Siemens Pension, all of which have assets in excess of £2.5bn. She was previously a partner specialising in pension law at Sacker & Partners.

Matthews succeeds Jane Newell, who will also step down from her role as chair of the Royal Mail defined contribution plan for employees who have joined since 2008.

The chairing of the two pension plans will now be split and a new chair for the DC plan will be announced shortly.

The plan, which is administered by Zurich has its staging date for auto-enrolment in November, but the company is taking advantage of the three-month waiting period to start in February.

The DC plan currently has 15,000 members and £50m in assets.