Algorithmics announced today that Hermes Fund Managers Limited (Hermes), which manages the BT Pension Scheme, the UK’s largest pension fund, has signed a five year contract for Algo Risk Service, an outsourced risk management and portfolio construction service. In addition, Hermes has entered into a development partnership with Algorithmics to evolve Algo Risk Service to become the “state-of-the art” scheme restructuring platform for pension funds.
Hermes will implement Algo Risk Service immediately in its pension fund management operation. This will include full risk management, portfolio optimization and ALM capability including stress testing and risk budgeting.
The development partnership between Hermes and Algorithmics will focus on leveraging Algo Risk Service’s current market leading risk and portfolio construction capabilities to build a groundbreaking financial engineering platform across assets and liabilities which will enable the pension fund management team at Hermes to:
i) assist in manager selection
ii) allocate and monitor risk budgets and their usage consistently
iii) assess areas of over/under utilized risk appetites across the scheme and
iv) construct and monitor the efficiency of overlay strategies to restructure the scheme’s risk profile.
Wyn Francis, head of Investment Risk, Hermes Pension Fund Management, said: “Managing such a large and complex pension scheme presents a unique set of risk management challenges. The complexity in controlling the risk associated with a portfolio containing a large pool of liabilities, assets allocated across a variety of classes and managers, demands a robust risk management platform.
“Our partnership with Algorithmics, and the capability of their risk management service, not only meets our current requirements but also offers the flexibility to accommodate the increasingly intricate scheme overlays that will enable us to manage risk more effectively and efficiently. This in turn will be the foundation for the strategic development of our pension fund management business.”
Dr. Andrew Aziz, executive vice president of Risk Solutions, Algorithmics, added: “We are very excited about Hermes becoming a client of Algo Risk Service in the short term and becoming our partner in evolving its asset owner capabilities over the medium term. We look forward to providing the pension fund industry with a groundbreaking platform that will allow asset owners to consistently monitor the risk budgets allocated to their managers across all investment strategies; to diagnose overall hedging requirements; and to be able to construct the appropriate overlay strategies to execute tactical and enterprise level objectives.”
Michael Zerbs, president and coo of Algorithmics commented: “We believe that our partnership with Hermes will create new risk management capability for the pension industry and will cement Algorithmics’ leadership position in pension/asset owner risk management. Algorithmics provides its clients with the capability to measure, understand and manage risk across their businesses so they can make the right business decisions and create value."
