£2.3bn Boots fund sells entire equity holding
The £2.3bn (e3.7bn) pension fund of the Boots group has sold its entire equity and short-term bond investments and switched its allocation to sterling long-dated fixed rate bonds in a shift that the fund says will save it around £10m per annum in management fees.
In a letter to pension scheme members, John Watson, chairman of the trustees of the Boots fund, says the move was made to establish the best asset match for its liabilities.
He also pointed out that the management charges and dealing costs for a £2.3bn fund came out at around 0.5% of the fund’s assets – or £10m each year - against the cost of the gilt exposure, which he said would only be in region of £0.25m.
As of April 2000, the fund had been invested to a level of 75% in shares, with 20% placed in short-term bonds and 5% in cash.
Watson added: “Through careful transition management we have been able to sell equities and buy long-dated AAA sovereign bonds, including 25% inflation-linked, from such issuers as The World Bank and European Investment Bank.
“The bonds have virtually no credit risk and are the closest possible match for the scheme’s pension liabilities.”
He noted that the Boots company supported the move as it “significantly reduces” the firm’s financial risk and fixes its pensions contributions going forward.
The company had been worried that by holding equities it ran the risk of creating a deficit in the fund that would have had to be met by increased company contributions.
The Boots pension Scheme, one of the UK’s 50 largest schemes was advised by William M.Mercer.
Legal & General Investment Management carried out the transition for the fund.