UK - The London Borough of Hammersmith & Fulham and North Yorkshire County Council appear to have taken opposing positions on the use of liability-driven investment strategies (LDI) in their pension funds.
Minutes from the latest meetings of the two authorities' pension fund committees revealed Hammersmith & Fulham has agreed to place 25% of the £446m pension scheme into a 'matching fund' to be split equally between Legal & General Investment Management (LGIM) and Goldman Sachs Asset Management (GSAM).
The creation of a 'matching fund' is the last stage in the pension scheme's agreed investment strategy, with the aim of ensuring liability is "properly managed and to achieve outperformance".
The pension fund's investment panel agreed the creation of a gilts-plus mandate - consisting of a combination of pooled liability hedging funds managed by LGIM and a cash- plus mandate run by GSAM - "would be the most efficient mechanism for the delivery of both risk control and return".
Within this, the outperformance target for GSAM's portfolio is initially set at 2% above cash, but with a view to potentially increasing it at a future date as the pension fund raised concerns that the recommended 3% target could expose the scheme to increased risk.
While Hammersmith is adopting a matching LDI approach, North Yorkshire confirmed in its latest meeting last month it intended to delay a move by its £1.2bn pension fund into LDI through interest and inflation swaps, over concerns with market timing.
In a presentation by two investment firms on pension fund LDI strategy, the committee was warned market timing was an important consideration and "hedging real liabilities at the present time appears expensive".
As a result, the committee was advised "not to hedge the fund's liabilities using swap contracts at the present time", although the position will be kept under review with more work commissioned to decide the best way to implement a hedging program using swaps if the committee makes the decision in the future.
The committee also confirmed the selection of Fidelity International to take on the overseas equity mandate formerly run by Barclays Global Investors (BGI), with effect from October 2008. (See earlier IPE article: North Yorks pension moves into property)
The council is still continuing with the process of appointing a global property manager, while latest figures showed the funding level of the scheme had dropped to 53% in the second quarter of 2008, resulting in a deficit of around £1.06bn
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