In a sign of pension plan sponsors' and trustees' heightened sensitivity to their risk exposures and desire for timelier reporting, U.K. risk systems specialist PensionsFirst has formed a North American division and appointed fund management veteran Alan Colner as CEO of the New York-based operation.
Founded in London in 2007, PensionsFirst sells an analytical tool for public- and private-sector defined benefit plans called PFaroe, which it says was the first to integrate asset and liability risk measures in an easily accessible Web application conducive to fast, flexible and accurate analysis and reporting. Seventeen major pension schemes with GBP 30 billion in combined assets have purchased the system since its November 2009 introduction, and plans representing 40 percent of that country's pension assets are negotiating to acquire PensionFirst's risk modeling software,according to a spokesperson for the company.
A recent PFaroe client signing was engineering services company Babcock International Group, which sponsors a GBP 2.8 billion plan. The investment strategy for a number of our schemes involves changes to asset allocations triggered by reaching specific funding levels, Andrew Birkett, Babcock group pensions manager, said in a February 1 announcement. To implement this strategy effectively, it is critical to have accurate liability and funding-level information available on a daily basis. This wasnt available from any other sources so we have adopted the technology platform provided by PFaroe, which enables the investment subcommittee to react quickly and take advantage of market opportunities for the benefit of the schemes."
PensionsFirst is a strategic ally of institutional investment services giant State Street Corp., which in April 2010 took a minority stake in the software company. It will hardly be the only provider of risk analytics to U.S. and Canadian pension plans. Many, especially the biggest funds, have reputations for technological and analytical sophistication, while some are only now starting to invest in the latest automated tools.
Whether directly or indirectly through investment services providers, pensions are among the institutional users of risk systems such as those of Barra and RiskMetrics, pioneers in the field now owned by MSCI, as well as Toronto-based Algorithmics, Axioma of New York, FINCAD of Vancouver, Canada, New York-based FinAnalytica. Boston's Northfield Information Services and financial technology conglomerate SunGard Data Systems.
But in the wake of the financial crisis, and in part as a response to due diligence and related demands from their constituencies, pension plans as well as endowments have noticeably stepped up their commitment to independent risk management and are seeking out solutions from this category of vendors. For example, pensions have been among the buyers of FinAnalytica's sophisticated quantitative tools, which are known for taking into account the so-called fat-tailed risks that caused havoc in the 2008 downturn. Through its partnership with PerTrac of New York, FinAnalytica announced in December that 20 firms worldwide had gained access to its Cognity software, and they included pensions, endowments and hedge funds.
Eagle Investment Systems, a subsidiary of State Street rival Bank of New York Mellon Corp. that is a leading provider of data management, investment accounting and performance measurement technology, announced in early February that it had agreed to incorporate into its Eagle product suite analytics from FINCAD, which has 4,000 users worldwide of its risk management and derivatives and fixed-income valuation offerings. BNY Mellon is also a part-owner of Investor Analytics, a provider of quantitative, multi-asset class risk analytics that BNY Mellon makes available to its bank, pension fund, hedge fund and other clients.
Stated PensionFirst's Colner, "Pension plans throughout North America face rapidly increasing financial pressure because of changing market, regulatory and demographic forces." He said the PFaroe platform "empowers pension executives with a substantially better way to measure and manage risk." He complimented the organization, which consists of more than 80 professionals from actuarial, capital markets and technology backgrounds, for having "dedicated their enormous talents to pioneering technology and capital markets solutions for improving pension management."
Colner was most recently a partner of Compass Advisers, an international merchant banking partnership with principal offices in London and New York. In that position, he had been advising PensionsFirst for two years, helping it to raise capital, including the investment in PensionsFirst Analytics, the U.K. entity, by State Street, which at the time of the deal had more than 2,500 pension fund clients. The alliance "enables State Street to further enhance the services we bring to defined benefit plan sponsors and reaffirms our strong commitment to this client segment," State Street vice chairman Joseph Antonellis said then. With concerns about underfunded pensions and the difficulty of accurately measuring liabilities," he added, "this innovative new product provides an enhanced level of transparency and insight into pension risk. We believe this strategic partnership creates a truly unique offering to our clients and provides a competitive advantage to both State Street and PensionsFirst."
Before working at Compass, Colner was managing director of private equity investments at Moore Capital Management and a managing director of private equity fund Corporate Partners.
PensionsFirst founder and CEO Timothy Lyons said that as an outside adviser, Colner "played a key role in helping us to develop PensionsFirst into a game-changing service provider to the defined benefit pensions industry. I am delighted that he has decided to join us as a partner and that we will have the benefit of his broad experience in financial services to help us drive our business forward in the U.S. and Canadian markets."