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Camden pension fund set to award first hedge fund mandate

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UK - A London local authority has selected a manager to oversee its first investment into hedge funds, allocating £50m (€60m) to the new asset class.

According to minutes from a meeting of the £945m Camden Council Pension Fund’s audit and corporate governance committee, the scheme selected from a shortlist of five managers, following an exhaustive tender overseen by Hymans Robertson that saw 54 companies apply.

The minutes add that scheme employees “were impressed with the standard of product available” and noted that HFRI indices had performed “significantly better” than the MSCI World equity indices over the past decade.

The five shortlisted managers - Aurum, Blackstone, BlueCrest, Brevan Howard and Prisma - were rated according to a number of criteria including fee structure and corporate capability, with the highest-rated manager appointed to oversee a £50m mandate - a slightly higher allocation than the initially proposed 5%.

“It was commented that the strategic allocation of 5% to hedge funds may be increased as part of future funding reviews,” the minutes added, although they did not mention which manager was recommended for appointment.

Separately, the scheme detailed its returns over the 12 months to December, revealing that only North American equities saw positive returns of 1.2% over the period.

Camden’s £68m in property holdings posted “modest” returns of 1.6% in the three months to December, while its UK gilt portfolios saw better growth - with index-linked sovereign debt returning 8.4%, while regular gilts grew 5% over the quarter.

The scheme also noted that Fidelity - due to “continued underperformance” of -4% since the inception of the equity mandate - had lost part of its global equity mandate, with assets being transferred to a portfolio overseen by Legal & General Investment Management (LGIM).

“Fidelity’s style is clearly not to take big positions away from the benchmark. The combination of multiple marginal underperformance has again led to significant underperformance over the long term,” the performance report said, noting that £30m was pencilled in for transfer to LGIM this month.

Monitoring its active membership in light of widespread redundancies in the public sector, the scheme said the number of active members transferring to deferred status fell “significantly less” in the fourth quarter of 2011 than in the two previous quarters.

The local authority fund remained cash-flow positive in October, November and December of last year, potentially putting to rest union concerns over funding as a result of redundancies in the public sector and contribution increases.

The report noted: “There does not appear to be an increasing trend in opt-outs following the government announcement of scheme reforms and strike action, although further communication is expected on this matter, and this will continue to be monitored.”

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