Lewisham targets commodities in revised strategy
UK - The London Borough of Lewisham is seeking a commodities manager as part of the implementation of its revised asset allocation of the £642.2bn (€712.5bn) pension fund.
The council's pension investment committee agreed to the new strategic allocation of the pension fund in June, following an 'MOT" by its newly-appointed financial adviser, who suggested "several modifications" given the current challenging environment.
Lewisham has committed to changing the allocation in a "phased process" which will see equities reduced from 69% to 60%, alongside a small increase in bonds from 15% to 16% and two new allocations including 5% to commodities and 3% to lending via M&G's UK Companies Financing fund.
The revisions also comprised an equity split of 20% in UK equities and 40% global, while UBS - which runs a passive bonds and equity mandate - was ordered to "sell all exposure to fixed [interest government] bonds and increase exposure to corporate bonds by 2% and index-linked gilts by 2%, including overseas ILGs".
As part of the implementation of this new strategy, Lewisham is offering a nine-year contract for a commodities manager - on a rolling three-year basis - to manage around 5% of the fund, equivalent to £30-35m.
Lewisham revealed its preference is for an active commodity manager to operate a pooled mandate with the aim of delivering "alpha enhanced, market-related returns". But it confirmed it would consider other products based on commodity investment if the tenderer "feels strongly that these will fulfil the fund's objectives".
However, officials said the aim of the mandate is to "capture upswings in commodities markets and therefore when commodities markets do not offer value, the investment committee, in conjunction with the commodities manager, may periodically suspend the investment without prejudicing the manager's contract".
It suggested the funds under management could be invested for only two years and then suspended for up to a decade if the commodity markets do not offer value to the pension scheme.
The tender will close to submissions on 20 November 2009, and it is envisaged that the council will make an appointment from a shortlist on 25 February 2010. Further information can be obtained from the procurement department at Lewisham Council.
Meanwhile, documents published ahead of the next meeting of the pension fund committee revealed the council's investment sub-committee - established as part of the restructuring process in June - had agreed the pension fund should increase its allocation to the property mandate run by Schroders. This will lead the fund to move from the current 8% weighting to the target 10% through a reduction in the passive equity portfolio run by UBS.
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