Royal Mail selects options strategy to manage equity risk

The Royal Mail Pension Plan has set up a £700 million options mandate to control equity risks in its defined benefit pension plan. The mandate has been hailed as a significant appointment, as it highlights the need for many pension funds to manage the downside risks from equity investment.

The structured equity mandate has been awarded to River and Mercantile (R&M), an advisory and investment solutions provider. The appointment was made in April with the mandate structure designed and executed in May 2015. Royal Mail Pension Plan chief investment officer, Ian McKnight, commented: “We are constantly seeking new ways to drive and manage returns on behalf of our members in the most efficient and risk-focused manner possible. This announcement is part of our ongoing risk mitigation investment strategy.”

R&M global head of distribution, James Barham, commented: “We continue to see significant demand from pensions and institutional clients for structured equity to shape the profile of investment returns for defined benefit pension plans. The design and execution of the Royal Mail mandate demonstrates the Group’s ability to design innovative, outcome-oriented solutions for our clients, which are delivered to meet their governance requirements.”