$Goldman Sachs (GS.US)$Got it$United Parcel Service (UPS.US)$The commission of $43 billion in pension fund assets is one of the largest transactions of its kind.
Goldman Sachs manages around $325 billion of such pension assets, and the investment authorization announced on Thursday brings it closer to its goal of surpassing rivals within the next three to five years. These competitors include Mercer, BlackRock, and Russell Investments, which are owned by Marsh McLennan.
According to data from consulting firm Cerulli Associates, the trillion-dollar global business that bears investment responsibility for large amounts of corporate pension funds — that is, the outsourced Chief Investment Office (OCIO) — will grow at a rate of more than 10% per year over the next five years. This means that fund managers are seeing this area as a productive source of revenue.
“In a more complex world, from a regulatory, economic, and market perspective, companies look around to see what others are doing and decide to reduce their focus on core business,” said Tim Braude, global head of Goldman Sachs OCIO in an interview.
For Goldman Sachs, the OCIO business is a fixed component of the asset and wealth division, providing a reliable source of large-scale revenue. Goldman Sachs's Marc Nachmann has said that running such portfolios for corporate pension plans and other large investors may be particularly attractive. Nachmann's mission is to make the department more dynamic and deliver more stable results.
Across the US, active markets and rising interest rates have turned some corporate pensions — fixed benefit plans like the United Package — from an expensive legacy promised in the past to an unexpected amount of savings.
Expanding capital pools have begun to overwhelm corporate treasurers and financial managers because they don't always have enough budget to set up an in-house investment office. They also prefer to spend their time and money on the company's business rather than acting as a financial manager.
This has led companies with a large number of pension plans to turn to external management, particularly those that are well-funded or overfunded. In the US, these types of pension plans represent a $2.5 trillion asset pool ready to be managed by potential external companies such as Goldman Sachs.
Assets from United Parcel (the program is almost fully funded) include its US and Canadian fixed benefit plans, and an internal investment team will join Goldman Sachs in the third quarter.