UK - The £2.3bn (€2.8bn) Cheshire County Council Pension Fund has awarded three fixed income mandates, including £130m into two high alpha funds managed by Henderson Global Investors.

The appointment of Henderson follows the council's tender for a £330m active bonds mandate in June 2007, as the scheme wanted to switch its fixed income strategy from the passive mandates run by Legal & General Investment management (LGIM) and Bailie Gifford. (See earlier IPE article: Cheshire going all active in bonds)

As a result, the pension fund has awarded £130m, or 40% of this allocation, to Henderson to be invested in the High Alpha Gilt Fund and High Alpha Credit Fund - pooled funds that aim to outperform traditional UK benchmarks by investing across a range of global fixed income assets, including developed and emerging government bonds, asset backed securities and currencies.

"The appointment followed a review of the structure of the fixed income component of the fund's portfolio as part of a wider continual process of reviewing the fund's investment strategy," said Bill Tunnicliffe, county finance officer at Cheshire County Council.

Minutes from the pension fund's investment panel in February meanwhile confirm Cheshire has also awarded a further two fixed income mandates to Goldman Sachs Asset Management (GSAM) - to manage approximately 40% of the £330m tender - while Bailie Gifford has been appointed to run the remaining 20%.

Together the mandates remain within the fund's strategic benchmark of 14% of assets allocated to fixed income.

Latest figures from the 2006/07 pension report showed the remainder of the strategic asset allocation was 69% in equities, 9% in property, 3% in Global Tactical Asset Allocation (GTAA), 2% in secured loans and 1% in private equity, with the remaining funds left as cash.

Following the appointment of new fixed income managers, the pension fund panel has also instructed its investment adviser Hymans Robertson - which assisted in the fixed income tender process - to examine the possibility of adopting different investment strategies for 'extinct' employers within the scheme that have some residual pension liability.

Documentation from the pension fund's recent investment panel meeting showed it is considering "an alternative approach to ‘index tracking' away from the market capitalisation weighted indices", following suggestions this can introduce "efficiency flaws" or a bias to large cap stocks with a high price to earnings ratio.

The minutes of this meeting also confirmed the pension fund has commissioned a report on the benefits of introducing passive currency hedging.

The fund already has an active allocation to currency through the GTAA funds, however it was noted a passive overlay could avoid currency exchange rates impacting on the fund's performance.

The Cheshire county council pension fund currently has just over 67,000 members, and at its last actuarial valuation on March 31 2007 the scheme funding level improved from 75% in 2004 to 85% last year, resulting in a deficit of £419m.

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