The People’s Pension moves £28bn from State Street citing stewardship misalignment
The master trust has significantly scaled back its investments with State Street, amid a wider push to exercise more control over its investment portfolio
One of the UK’s largest DC master trusts with more than £30bn in assets, has cut back on its investments with US manager State Street, citing misalignment on climate stewardship as one of the factors influencing the decision, Net Zero Investor can reveal.
This marks a crucial escalation of the growing divergence between long-term investors and large asset managers on tackling climate change.
The move comes amid a wider overhaul of the master trust's investment strategy, which had previously invested virtually all of its assets with State Street through pooled funds, CIO Dan Mikulskis told Net Zero Investor. The People's Pension has recently transitioned some £28bn of its assets into segregated mandates held by Northern Trust, in a bid to exercise greater control and flexibility.
It has now appointed French manager Amundi and Henley-headquartered Invesco to manage the bulk of its assets, a significant snub to State Street, which made headlines for its departure from CA100+.
Going forward, Amundi will be managing the master trust’s £20bn passive equities portfolio, while Invesco will take responsibility for more than £8bn in active fixed income investments, the People's Pension confirmed. State Street Global Advisors remains in charge of the remaining £5bn of the portfolio. Only a year ago, the People’s Pension had shifted the bulk of its passive equity holding into a climate-aware strategy, which was also managed by State Street. But now it wants to go further.
A natural evolution
Investing on behalf of more than 6.5m members and with more than £300m of inflows every month, the master trust had outgrown its pooled fund setup with State Street.
Nevertheless, his vision for the fund continues to be centred on close collaboration with a handful of managers, rather than picking from a much broader universe of funds, as some of the master trust’s peers have done, Mikulskis said. “Instead of working with a single asset manager, we’ve chosen to have a small number of strong partnerships that allow us to engage more deeply and ensure alignment with our long-term objectives,” he explained.
Yet, whilst Mikulskis is careful to avoid open criticism of State Street, this statement includes a tacit acknowledgement that this alignment with the US manager has come under increased strain.
Misalignment
The People’s Partnership led a recent initiative among long-term asset owners aimed at pushing managers to uphold their climate pledges. With shareholder resolutions on climate struggling to gain traction at AGM's, many asset owners are now turning their attention to the stewardship positions taken by their managers.
In response, 26 asset owners representing more than $1.5trn in assets have issued a new guideline on stewardship alignment. They stressed that as long-term investors, they continued to identify climate change as a financially material factor and expressed concern over managers publicly backtracking from their climate pledges.
Leanne Clements, head of responsible investment for the People’s Pension, has been at the forefront of coordinating the statement. She told Net Zero Investor that the pension fund had voiced concerns on climate stewardship with State Street, describing it as part of the “slow-burn engagement process” with the manager.
An important piece of the puzzle has been the launch of the pension fund’s responsible investment strategy in May last year, adds Clements. The strategy included a clear warning that managers who did not sufficiently commit to tackling climate change risked the pension fund taking its money elsewhere.
State Street, which has more than $4.7trn in assets and is the world’s third-largest manager, is ranked 63rd out of 70 in ShareAction’s latest Voting Matters report, showing very little backing for social and environmental resolutions put forward in the 2024 AGM season. Over the past three years, its backing of ESG resolutions had fallen from 30% in 2021 to 9% in 2024, according to ShareAction.
In early 2024, the manager announced its departure from CA100+. “The timing of State Street’s exit from Climate Action 100+ was certainly noted by the trustees. While not a sole trigger for change, it was part of the broader evaluation that informed our decision,” Clements said.
Responding to the announcement, a spokesperson for State Street told Net Zero Investor that it remained focused on growing its franchise in the UK DC and other markets. “Our business has been expanding in recent years as we form new partnerships, and we have a strong pipeline of opportunities for 2025. We look forward to continuing our work with The People’s Pension on the remaining mandates” the manager said.
Work in progress
The announcement marks a significant milestone for the master trust, which has grown rapidly since its launch in 2012. Within the next five years, it expects to hit the £50bn mark, doubling its assets again to £100bn over the next ten years. Its stance on climate therefore sends a crucial signal to the wider institutional market.
Mikulskis stressed that responsible investment considerations played a key role in the appointment of Amundi as passive equity manager. The €2.2trn French manager ranks 6th out of 70 in ShareAction’s Voting Matters score.
Yet, there is still more work to be done. Compared to its peers, the People’s Pension has been relatively slow off the mark, having only confirmed its net-zero strategy last year. A recent comparison of master trusts conducted by Net Zero Investor places the People’s Pension squarely into the medium level when it comes to interim targets and the emissions intensity of its default portfolio. Unlike many of its peers, it is yet to confirm direct investments in climate solutions.
This is work in progress. The master trust has, over the past few months, expanded its investment team to more than 20 and confirmed that it plans to commit some £4bn to private markets by 2030, the fund announced in January.
But for the time being, the priority lies in getting the responsible investment approach for the overwhelming majority of default assets in listed markets right, Mikulskis stressed.
Move towards mandates
The shift towards investing through segregated mandates will play a key role in this evolution, he adds. While switching from one pooled strategy to another last year was relatively more burdensome, it should now become much easier to adjust mandates. “This gives us far more control over our investments. We can switch managers more efficiently and tailor mandates to our responsible investment goals,” he explained.
“When you're a small, growing pension scheme, pooled funds are a great solution because they provide scale and liquidity. But once you reach a certain level of maturity, as we have, segregated mandates offer better value for money and much greater control over investments.”
“We now own securities directly in our name and have built bespoke investment management agreements (IMAs) with net-zero commitments and custom exclusions.”
The ramifications for the fund’s stewardship approach are potentially far-reaching, Clements added.
“A segregated mandate offers us a lot more control on voting. Having selected Amundi to manage our passive equities portfolio, we now have far greater alignment on stewardship, but if we wanted to alter things around the edges, we now can. It is putting us in control to a greater extent than pooled funds do.”
Will it help turn the tide on climate stewardship? That remains to be seen. But it might well send an important signal to managers that asset owners have no intention to scale back on their climate targets.
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