Nurturing the stars of the Future

Judge’s comment: “Wide ranging and well-thought out approach to investing in emerging markets incorporating a broad universe of asset classes

The emerging markets portfolio of the Royal County of Berkshire Pension Fund (Royal Berkshire PF) currently represents some 16.4% of the fund’s €2.4bn asset base, compared with 12% in 2010. It comprises a 13.6% allocation to quoted equities, including a significant investment in frontier markets, 1.2% in private equity, 0.2% to private debt, 0.9% to infrastructure and 0.5% to property. Royal Berkshire PF believes that market efficiency in developing economies is low and it thus adopts an active approach.

However, the fund has continued to review and re-evaluate what constitutes an emerging market and how they should be approached, as well as where the next best opportunities exist. While its initial exposure to emerging markets comprised both quoted equities and liquid bonds, over the last few years the fund has diversified its holdings by adding more alternative and multi-asset investments in both the public and private sectors. The rationale behind the increase in emerging markets investments against other asset classes comprises three main correlation risk factors:

  1. The increasing correlation between developed market and emerging markets equities

  2. The highly variable correlation between economic growth and stockmarket performance

  3. The thesis that a broader scope will have a higher correlation to long term economic growth and less volatility. 

The scheme therefore decided to expand its investment scope beyond traditional emerging market investments into both frontier markets that comprise pre-emerging markets and other alternative emerging sub-classes such as infrastructure, private equity and multi-asset class approaches. Royal Berkshire PF argues that many of these investment opportunities do not appear in either quoted stocks or traditional indices but yet represent better GDP growth and potential that is supported by the rapid emergence of the middle class and maturer legal and political frameworks. This expansion has resulted in further infrastructure commitments to India, Africa and China coupled with allocation to two specialist emerging market multi-managers: Sarona and Kuramo.

Royal Berkshire PF’s India exposure now involves two key investments. The first is an Indian side-car vehicle targeting two roads and other related forms of infrastructure. The other is a core India infrastructure fund that invests in a wider range of asset types, including mobile telephony masts, airports, roads, and power generation plants and sources. The Africa infrastructure investments now include a wider range of asset types including toll roads, telecommunication towers, wind-farms and other renewable energy related investments. The China investments concern water treatment plants, waste management, renewable energy related investments, ports and storage.

The Kuramo fund focuses on both public and private investments with smaller, regional and sector managers, as well as primary, secondary and direct transactions across various asset classes. Sarona concentrates on local funds that invest in growth-stage companies in high-growth countries across frontier and emerging markets. Sarona’s investable universe generally includes countries with a GDP per capita below $12,000 (€10,880). 

Royal Berkshire PF has also comitted to two equity dividend growth mandates in developed markets with Kames Capital and RWC Capital with the objective of ensuring that the initial income grows over five years at least in line with inflation. This income is then available to pay inflation-linked benefits.

Finally, the fund has also adopted a specific emerging markets currency overlay as part of its overall currency overlay programme. This acts as a bespoke benchmark, removing much of the currency risk and volatility to which Royal Berkshire PF is exposed. The emerging market portion of this currency overlay accounts for 15% and can accommodate tactical tilts on selective emerging market currencies.

Essentials to March 31 2015

Royal County of Berkshire Pension Fund

United Kingdom

Founded in 1928

Defined benefit public sector fund


  • active: 23,163
  • retirees: 14,596
  • deferred: 23,192

Assets: €2.4bn


  • one year: 10.2%

Quick facts

  • Emerging market portfolio totals 16.4% of overall assets
  • A highly diversified strategy targets frontier as well as emerging markets
  • Scheme-specific emerging market overlay to manage risk and enable tactical shifts


  • APG The Netherlands


  • Bart Heenk
  • Joseph Mariathasan
  • Bob Swarup