UK - The £1.3bn (€1.9bn) Durham County Council pension fund is set for a complete overhaul of the fund’s investments in an attempt to address the £321m fund deficit. The mandates tendered see a stronger emphasis on bond exposure.
“It had been decided to restructure the way the assets are invested to have a greater focus on the performance of different types of investment liabilities,” the council stated in a press release. In total six mandates are tendered, amounting to the total of the fund’s assets (details of the mandates are given below).
Despite consistently reducing the pension fund deficit over the last years from £589.1m in 2004 (fund size 2004: £897m) to £321m at 31 March 2006, mandates are currently tendered for all of the assets. Currently Legal and General Investment Mangagement are holding various mandates totalling to £425m, Baring Asset Management invests £435m and Morley Fund Management £418m.
Under the new asset allocation the total bond portfolio will be £470m making up 36% of the fund’s portfolio. The equity portfolio will amount to £645m or 49%. As IPE understands it this means a stronger emphasis on bonds following the adoption of a “liability driven investment methodology” mentioned in the funds 2006 statement of accounts.
In its most recent statement of investment principles in 2005 the fund had set out a top exposure to bonds of 35% and an exposure range for equities of 45% to 65%. The council did not want to give any further details of the tenders.
Eight per cent of the portfolio (£100m) will be invested indirectly in property. The final mandate tendered by Durham CC is a £100m contract for dynamic asset allocation. The exact nature of the mandate is unclear and the fund did not want to clarify the requirements.
The overhaul follows a one-year review of the fund in which “the council has completed an intensive 12 month training programme for its pension fund committee members, in order to better inform its decision making process”. The council was advised by “Ajeet Manjrekar from PSolve Asset Solutions and Philip Williams”, the press release stated.
All of the following contracts tendered by Durham CC are to be awarded for three years. The deadline for participation in the tender is 27 November.
- UK Equities (£270m): target return 3% in excess of the FTS all share Index
- Global Equities (£375m): target return 3% in excess of the FTSE A W World Index/MSCI AC World Index
- Conventional Bonds (£260m) to be invested n Investment grade bonds: target return 0.5% in excess of the FTSE over 5 Year Index - Linked
- Broad Bonds (£210m) to be invested in Global Bonds: target return 3% in excess of UK 3-month LIBOR, 5-10% volatility
- Global property (£100m) to be indirectly invested in property, not restricted to UK-vehicles but “at least a pan-European basis”: target return 5% pa in excess of UK retail price inflation
- Dynamic Asset Allocation (£100m) to be invested in a fully diversified global portfolio: target return 4% in excess of UK 3-month LIBOR, 5-10% volatility.