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Hammersmith and Whitbread reveal strategic decisions

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UK - The London Borough of Hammersmith & Fulham has decided against adopting a currency hedge strategy for its £438.5m (€503.4m) pension fund, but will keep the option under review.

Minutes from the last meeting of the pension fund investment panel in June revealed the scheme’s investment advisor P-Solve had recommended a currency hedge with MFS, the manager currently running the scheme’s 23.8% overseas equity portfolio. (See earlier IPE article: P-Solve retained as Hammersmith & Fulham adviser)

P-Solve told the panel this was an “unrewarded risk” within the overall portfolio and suggested hedging 50% of the exposure, although it noted this would increase MFS’ portfolio management fees.

However, the minutes revealed “members [of the panel] were not persuaded that hedging would be beneficial at the current time and therefore decided not to adopt the recommendation”. Instead, it agreed to track the impact of currency on future performance with a “view to review the position at a later date if necessary”.

Second quarter figures published by Hammersmith showed the value of the scheme had increased in the three months to June 2009 from £411.8m to £438.5m, while the asset allocation of the fund comprised 24.8% in UK equities, 23.8% in overseas equities, 25.9% in a dynamic asset allocation (DAA) fund and the remainder in a matching fund run by Goldman Sachs and Legal and General.

Elsewhere, Whitbread Group, the UK hospitality firm, has confirmed it will close its defined benefit (DB) scheme to future accrual at the end of 2009 following a four-month consultation period.

The announcement, made ahead of its trading statement on Monday, said the move would affect around 800 employees, equivalent to 3% of its workforce, as the scheme had already closed to new members in 2002.

However the firm, which owns Premier Inn and Costa Coffee, said the closure would coincide with improvements to the defined contribution (DC) section of the Whitbread Group Pension Fund, with the eligibility to join this part of the scheme extended to a further 14,000 employees.

Lesley Williams, pensions director at Whitbread, said: “The changes will bring the pension benefits across the business into line and ensure that we offer fair pension benefits to all.  Extending eligibility for the Pension Fund and improving the level of employer contributions will continue to ensure attractive benefits for Whitbread employees and for those joining the business.”

The decision to close the £1.37bn DB section to future accrual follows confirmation in its interim results earlier this year that the actuarial deficit had increased to £388m at the valuation in March 2008, against an IAS19 deficit of £233m in February 2009.

Following the increase in the shortfall Whitbread highlighted it had agreed a new recovery plan with trustees that included the transfer of £150m in property as contingent assets and a cessation of deficit contributions until August 2011 when the amount would increase from £20m to £55m. (See earlier IPE article: Whitbread sets out recovery plan for £388m deficit)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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