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At Centrica, Chetan Ghosh Balances Liability Matching and Returns

Combining a big fixed-income exposure for liability purposes with a new approach to allocating risk capital is generating strong returns at U.K. pension.

Chetan Ghosh got his start in the pension industry in 1995 as an actuarial and investment consultant, but he truly found his métier when he started investing pension assets at Centrica. Hired in 2009 by the utility, based in the London suburb of Windsor, Ghosh was groomed to succeed John Clark (now chairman of the investment committee) as CIO, which he did in 2012. The 40-year-old executive has instituted a number of creative changes at the £6.5 billion ($9.6 billion) fund.

On the portfolio front, Ghosh overhauled the investment approach from a static asset allocation model to incorporate liability-driven objectives. The result is that fully half of the assets are now in fixed-income vehicles, including investment-grade credit, senior loans and private debt. The CIO also made a tentative move into risk parity, devoting 1 percent of the portfolio to the strategy while he and his team assess its value and utility to the overall fund.

Meanwhile, Ghosh has increased the investment team from two to five, thereby reducing Centrica’s reliance on an outside investment adviser. And he has created a unitized solution for each of the three pension schemes within the portfolio, taking into account their different liability profiles. “We had the foresight to do it now. The longer you delay, the harder it is to unwind,” he says, speaking of the different exposures required by each scheme. All in all, the fund has a total of 30,000 members.

The CIO has also overhauled governance at the fund. He increased the number of external investment committee members from one to three and put asset deployment in the hands of the investment committee and its subgroups rather than fund trustees. The change has freed up trustees to concentrate on top-line and key strategic decisions. “We could espouse the virtues of making sure you get your governance approach as streamlined or as optimal as possible,” says Ghosh. “It has been highly beneficial to us on our journey.”

More recently, Ghosh designed an asset valuation framework that seeks to deploy capital where the probability of outsize returns is the highest. This project is relatively new and will continue to evolve. The hard work of the CIO and his team has paid off with an annualized 14.0 percent return over the past six years.

This profile is one of 12 written for our 2015 European Investment Management Awards, which honors some of the best investors in the business. See also profiles of Lifetime Achievement Award winner Henrik Gade Jepsen and Lancashire County Pension Fund's Michael Jensen. Check back tomorrow to read about Geraldine Leegwater.

Follow Frances Denmark on Twitter at @francesdenmark. Read her blog, “Inside Edge.”

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