£1.2bn Trafalgar House fund replaces Hewitt (amended)
UK - The £1.2bn (€1.5bn) pension fund of the former UK property conglomerate Trafalgar House has appointed Dutch consultant Cardano as its new investment adviser, replacing Hewitt.
As part of the investment consulting relationship, Cardano will also manage the fund's derivative overlay portfolio, though no investment responsibility has been transferred to the manager.
The appointment follows the Trafalgar House Pensions Trust's recent due diligence exercise, which involved a relationship with Kerrin Rosenberg, previously at Hewitt, and is now re-established since he became chief executive of Cardano's London office.
Cardano has also agreed to a remuneration structure that ensures the company will only earn money if the fund achieves its investment objectives.
Ros Altman, who has been a trustee with the pension fund since 2007, told IPE today: "As a trust we are looking for specialist investment consulting and investment consultants who would be incentivised to achieve the result we need to achieve in order to pay the pensions in full."
According to Altman, it is an unusual approach, but fits neatly with the pension fund's fundamental investment philosophy.
"If we don't achieve our investment objectives Cardano will lose money on us, if we do they will make more than they would have done if they'd charged [us] in the normal way," she said.
That said, the relationship does not incentive Cardano to make huge returns or take larger than average risk because the scheme has installed caps, she explained.
Trafalgar House Pensions Trust has a liability-matching portfolio which requires derivatives on which Cardano will be advising the fund, again replacing Hewitt.
Around 40% of the pension fund relies on swaps in particular, on top of the general fixed income and inflation-linked investments, to help match the liability changes that will occur over time.
"We use the spare capital left over from swaps and the assets in the fund to achieve returns above the liability and taking extra investment risk for which we expect to be rewarded," said Altman, who predicts such an investment approach - already popular on the continent - will also become a trend in the UK.
Kerrin Rosenberg said today the fund's investment committee comprises professional investors with a particular strength in hedge funds, real estate and private equity.
"The Trust employs a state of the art investment strategy designed as much to manage risk as to generate returns," he added.
The fund began revamping its investment approach in 2006, with the exception of some private equity, real estate and infrastructure investments, most of which were already in place.
"We have revamped our investment approach so that all our investments are designed with the idea in mind of delivering the pensions, asking the questions what returns do we need to achieve over the long term to close the deficit and meet the liabilities on an ongoing basis and how do we find the best asset classes and the best managers?" concluded Altman.
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