Barclays’ Pension Manager Tony Broccardo Turned Crisis to His Advantage

Talk about a trial by fire. Tony Broccardo took the helm of Barclays’ pension fund in September 2008, just four days before the parent of its Canary Wharf neighbor, Lehman Brothers International, declared bankruptcy. The ensuing market turmoil slashed the fund’s assets by £4 billion ($5.7 billion), to £14 billion. Not one to let a crisis go to waste, Broccardo pushed for and won authority from pension trustees to make investment decisions, overriding a committee of external advisers that had performed the task.

“Can you imagine asking the executive power to run a large fund amid huge amounts of volatility and concern?” asks Broccardo. “We tried to force change during a period of massive uncertainty.”

Broccardo, who was previously CIO at London-based F&C Asset Management, immediately embarked on what he dubbed Project Oak to prepare for a postcrisis world. Seeing value in U.K. gilts, or government bonds, as a hedging instrument and future potential in equities, Broccardo put a giant leveraged hedging strategy in place. He sold a big chunk of cash equities and replaced it with futures that leveraged the exposure, then used the remaining proceeds to buy indexed-linked gilts. The initiative was such a success that in 2010 the trustees turned the project into Oak Pensions Asset Management, a registered vehicle with Broccardo at the helm. He has doubled the investment staff, to 14; today the team manages £30 billion. Executives at 30 private sector pension plans have talked with Broccardo about adopting the Barclays model for their own funds.

Four years ago Broccardo merged the Barclays fund’s liability-driven investing book with its credit portfolio to achieve a 50 percent fixed-income allocation. A further 20 percent of the fund is in equities: half in derivatives and the rest split between active and smart-beta managers. A diversifying asset portfolio, comprising hedge funds, private equity and real estate, makes up the remaining 30 percent. The fund had annualized returns of 9.2 percent over the five years ended March 31.

Broccardo, 52, is nothing if not persistent. He has grown venture capital to half of the fund’s private equity allocation by inviting venture managers to tea at a Silicon Valley hotel and not leaving town until they took him on as an investor. His latest obsession? Finding what he calls contractual cash flow assets, such as index-linked vehicles or properties that throw off rents. Unfortunately, Broccardo is not alone. “It has become much more difficult as the competition is more fierce,” he notes.

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