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Kingston restructures 'inefficient' portfolio

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  • Kingston restructures 'inefficient' portfolio

UK - The Royal Borough of Kingston Upon Thames has started the restructuring of its pension fund investment portfolio by issuing four management tender notices.

The £321m (€406m)  pension scheme intends to diversify its existing portfolio and is offering a £130m global equity 'core' mandate, an £85m global equity 'high alpha' mandate, a global equity 'unconstrained' contract valued at £65m, and a £50m allocation to UK bonds.

Kingston previously allocated 70% of assets to be managed on a passive basis by UBS Global Asset Management while 30% was allocated to an active global equity mandate run by Capital International.

However, the pension fund initiated its latest investment review in February 2007 and in May 2007 it terminated the contract with Capital International and transferred all of the scheme's assets to the temporary management of UBS.

Following the completion of the investment review, the pension fund has decided the previous asset allocation strategy was "not efficient or effective" and instead intends to adopt a "more active investment management strategy" in an effort to "optimise investment risk and return".

As a result, the scheme, which is advised by Mercer, has agreed a restructuring of the fund to move from one passive manager - UBS Global Asset Management - to a four manager structure, with the appointment of a fifth alternative investment manager to be considered at a later date.

Kingston confirmed it may appoint more than one manager for each contract, which are all for an initial period of five years but with the option for a further five-year extension, albeit performance will be reviewed after the first three years.

The pension scheme revealed it expects the core global equity manager to outperform the MSCI All-Countries World Index by 1.5-2% per year, while the high alpha mandate requires the manager to achieve outperformance of between 2.5-3%.

In addition, the manager of the unconstrained portfolio should target an outperformance of at least 3.5%, while the UK bonds manager should aim to exceed the iBoxx All Stocks Non-Gilts index by 0.5%.

The deadline for applications to submit a tender for any or all of the mandates is July 31 2008.

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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