UK - The BT Pension Scheme has shifted £250m (€315m) of commodities investment into a new index fund which targets extra returns by managing futures rolling and cash collateral differently.

As well as this, the scheme has put £100m of new money into a separate commodities fund, which aims for alpha and strips out the commodities exposure.

The two funds are run by Hermes, the investment manager owned by the BT scheme.

"The new fund uses a number of techniques we used within the original commodities index fund," Andrew Raisman, marketing director of Hermes, told IPE. " We are using intelligent indexation, which involves intelligent management of the futures rolling and the cash collateral.

"We have been producing returns with those techniques, and we felt we ought to be able to do some more, but that it would be inappropriate within the index fund," he said.

The £250m of funds channelled into the new Hermes Commodities Index Plus fund, which was launched at the end of March, is being transitioned from an existing passive commodities portfolio, Raisman added.

Altogether, the BT Pension Scheme has £1.36bn allocated to commodities, representing a 3% slice of total assets.

"We took a positive view of commodities in 2005, and allocated 3% of the scheme to commodities for reasons of diversification," he said. "We felt commodities provided a good diversification to equities, and that has proven to be the case."

The Hermes Index Plus fund aims for the return of the Goldman Sachs Light Energy fund plus 3%, while the Alpha fund targets LIBOR plus 3%.

"We achieve that using many of the same strategies, but we strip out the market beta to give an absolute fund," said Raisman.

At the moment, the funds are being run exclusively for the BT Pension Scheme, but in time they could be offered to external investors, depending on capacity, he continued.

"We want to run them for a while to become confident and understand exactly how they are running; once we've done that, we will know what the true capacity is. Then we might consider marketing them externally," he said.

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