Islington seeks managers and eyes GTAA after review
UK - The London Borough of Islington pension fund is seeking managers for global equity and bond mandates, valued at up to £400m (€522m), and is keeping a watching brief on a possible move to global tactical asset allocation (GTAA).
The fund, valued at £709m at March 31 2007, currently has 32% of the fund allocated to overseas equities through Capital Management, while UBS and Insight Investment both manage a 10% allocation into bonds.
However, in November the scheme agreed to increase its allocation to property and private equity and marginally reduced allocation to equities, so following a review of the investment manager structure of the fund, officials agreed to tender both the global equity portfolio, which has the option of splitting the mandate, and the bond portfolio, which carries an option to amalgamate the mandate.
The active global equity contract - which could be split between several managers - is valued at between £200-250m so the successful applicants will be required to outperform the benchmark by approximately 2% over a rolling three-year period.
Although the pension fund will consider pooled funds and higher performance targets, it is looking for a segregated fund which is a mainstream global equity product rather than a long/short, market neutral, 130/30 or absolute return-type product.
That said, it confirmed it will allow one or more investment styles to be used, including large/medium/small cap; stock-picking; core; growth; value; quantitative best-in-class and thematic.
In addition, the fund is seeking one or more managers to deliver an active UK bond mandate valued between £100-150m, although the fund confirmed it is prepared to allow managers "significant discretion" to invest in assets outside UK gilts and corporate bonds, including overseas and high yield bonds and emerging market debt.
The mandate requires potential managers to outperform the relevant indices by around 1.5% a year, although Islington admitted proposals for core mandates with lower outperformance targets will be considered.
Performance figures for the pension fund between October and December 2007 revealed Capital International continued to underperform the benchmark, with returns of 8.6% compared with the benchmark of 12.5%.
The quarterly report pointed out the value of the overseas equities portfolio had fallen from £237.4m in September 2007 to £234.2m at the end of December, despite having a mandate to outperform the customised global ex-UK equity benchmark by 1.5% over a three-year rolling period.
Documents published ahead of the pension sub-committee's next meeting on March 4 2008, also revealed the fund's intention to keep its 4% active currency mandate run by Goldman Sachs Asset Management under review for the rest of 2008, following recent underperformance by its blended currency fund.
Islington admitted Mercer, one of the fund's investment advisers, had recommended switching to GSAM's Global Tactical Asset Allocation (GTAA) product, however following recently implemented changes to the blended fund - and GSAM's admission that the GTAA also underperformed over the year to date - the sub-committee intends to wait until the end of 2008 to allow it to "evaluate performance" over a full three-year period.
But it warned: "If GSAM does not improve performance the fund should then determine whether it wants a pure currency mandate or a more diverse vehicle such as the GTAA, and then whether it wants to go out to tender for a new manager. "
In addition Islington highlighted as it is already tendering both its global equities and bonds portfolio, "resources will be stretched to add the tender of the currency mandate at the same time", and suggested the timing "may be more appropriate once the new global equities mandate is finalised".
Both the bond and global equity mandates will last for a minimum of three years, and the closing date for both tenders is April 14 2008.
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