UK – The hand of former State Street Global Advisors’ chief investment officer Alan Brown can be seen in his new firm Schroders’ decision to dramatically revamp the asset allocation of its £465m (€688m) defined benefit pension fund.
Brown unexpectedly quit SSGA in March this year after being passed over as chief executive of the division – he joined Schroders as CIO in May.
Schroders is currently undergoing a large-scale review of the fund’s portfolio, which will see many of its mainstream equities sold off in favour of bonds, derivatives and alternative assets.
Brown – who is not a trustee of the fund – was quoted in the Financial Times today as explaining how the fund changed the duration of its assets.
"We realised that we could do a better job using synthetic swap-based products," he told the paper.
A Schroders spokesperson said Brown was involved in implementing the trustees' decision. The trustees were also advised by Hewitt. Brown “was involved in the process,” said the spokesperson.
The move is likely to be completed by January/February 2006, and will see approximately 35% of the fund’s portfolio invested in bonds and derivatives. Much of the rest will be go into a variety of alternative investments.
The fund has been reviewing its strategy for about a year, according to the spokesperson.
He added that the trustees felt this was “the best way to keep the fund fully funded”.
The announcement comes almost two months after the £870m WH Smith pension fund overhauled its entire portfolio, opting for derivatives to hedge against inflation and interest rates.
Reports today suggested that the move from equities to bonds and other asset classes was part of a growing liability driven investment trend in the UK’s pensions industry.
The new accounting rules compelling funds to report scheme liabilities to shareholders, meaning the gap between assets and liabilities can no longer be ignored, were seen as key motivators behind this trend.
A traditional focus on equities – and the volatility of this asset class – has severely impacted pension funds’ asset-liability gaps, thereby affecting contribution rates and investment strategy, said reports. This has also triggered a move towards the creation of more risk-averse asset portfolios.
Schroders told IPE that it is likely that LDI would become more important in the future, and more interesting to pension funds.
However, the spokesperson added there were different types of LDI and different pension fund structures. “There is no one set type,” he said.
The Schroders DB scheme has approximately 2,300 members.
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