UK - The London Borough of Lambeth is tendering seven investment mandates for its £700m (€781m) pension fund as it has overhauled its strategy to include new investment classes such as fund of hedge funds and active currency.

The pension fund currently employs six investment managers - Alliance Bernstein, UBS, Aberdeen, RREEF, Majedie and Adams Street - to cover investment in equities, bonds, property and private equity.

But a review of the investment strategy, which began in November 2008, means it plans to invest 70% in return-seeking assets and 30% in liability matching assets, so Lambeth Council is now tendering around 82% of the pension fund's assets worth £580m.

A spokesman at the council confirmed that two managers would be retained by Lambeth - Adams Street for the 5% private equity allocation and Majedie for the 8% UK equity mandate - although the remaining four managers are able to submit bids for the new mandates.

These new mandates include an extension of the property mandate from 4% to around 12%, as RREEF managed £19.6m of its assets at the end of June 2009, while the council is also offering new allocations to absolute returns, currency and the introduction of an LDI strategy.

Lambeth is now seeking one or more managers for each of the following three-year contracts: 

Active global equity core mandate, valued at between £60-80m, with a target of +1-2% above the MSCI AC World Index; Active global equity high alpha mandate, valued at between £60-80m, with a target of +2-3% above MSCI AC World Index on a rolling three-year basis; Active pan-European property mandate, valued at around £85m, to be split 60% in UK property and 40% European (ex-UK) property through institutional pooled property funds or fund of funds; Passive or active Liability-Driven Investment (LDI) strategy to hedge part of the interest rate and inflation sensitivities of the fund using 30% of assets, or £210m, using interest rate and inflation swaps, gilts, credit bonds and cash instruments; Active Fund of hedge funds mandate, worth £70m, with a target of +2-5% above LIBOR through diversified exposure to all styles of hedge funds. Active currency overlay to establish a passive hedge on £140m of overseas equity assets, using up to 5% (£35m) of the pension scheme assets, and Active diversified growth mandate worth £35m to produce a target return of +2-4% above LIBOR.

At the end of June 2009, the pension fund's asset allocation comprised 33.1% in UK equities, 27.3% in overseas equity, 12.5% in global equity, 11.7% in fixed interest bonds, 3.2% in index-linked bonds and 0.9% in non-sterling bonds. Of the remainder, 5.7% was invested in property, 2.7% in private equity and the rest in cash.

This resulted in a Q3 return of 8% against a benchmark of 7%, although the return over the year to 30 June was -14.4%.

The closing date for submissions is 20 November 2009 and further infomration can be obtained from Lambeth Council.

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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