UK - Hermes Pensions Management is planning to launch an index commodity fund exclusively for pension schemes early next year.
The company says that the fund - a sterling-based Guernsey-domiciled open-ended investment company - will be the first of its kind in enabling pension funds to access commodities relatively cheaply.
The new fund will track one of the Goldman Sachs Commodity Indices, which Hermes says will make it easier for even small pension schemes to get exposure to the asset class.
The idea for the fund came from Hermes’ work as co-manager of the BT Pension Scheme. Hermes identified commodities as an asset class which needed to be included in the pension scheme’s portfolio.
James Walsh, executive director of strategy and alternatives, Hermes Pensions Management, said: “We realised that other pension funds might also find it useful to invest in commodity futures. The asset class provides excellent diversification, as commodity prices do well when equity and bond markets are doing badly.
“Furthermore, commodity prices are linked to inflation, so can help in balancing pension fund liabilities, which are also linked to inflation.”
The Goldman Sachs Commodity Indices are based on a broad index of about 25 commodity futures, including energy, metals and agriculture.
Because the new fund will be passively managed, its pricing will be fairly low, with no performance fee, and Hermes says that the minimum investment will also be small.
Walsh says: “There are commodity funds around, but they are actively managed, and therefore expensive. However, what pension funds want is something which is passively managed and cheap. Furthermore, actively-managed funds do not give the same diversification benefits, because they frequently invest on a tactical, short-term basis.
“This year, for instance, many hedge funds have done badly in commodities, because they went short, not long. An index-based, long-only fund provides more of a long-term proposition.”