UK – Hertfordshire local authority pension fund is to delegate responsibility for its alternatives portfolio to LGT Capital Partners, in a fiduciary mandate award worth as much as £300m (€370m).
The decision by the £2.5bn pension fund will likely see it significantly diversify its holdings.
The local government pension scheme said in its initial tender last April that it would look to invest in infrastructure, insurance-linked securities and timberland, among other assets.
Discussing the appointment, Hertfordshire’s head of special accounting Patrick Towey told IPE that despite LGT’s background in hedge funds and their inclusion on the list of permitted investments, the scheme was “not particularly” looking to pursue the asset class.
“We would like that manager to look at infrastructure,” he said, adding that the decision to opt for a partially delegated mandate – the fund’s first fiduciary award – was made to allow for an exposure to asset classes that could not be gained through its existing managers.
“We were looking to diversify the portfolio following an investment strategy review undertaken in 2011 and, as a result of this review, to reduce our exposure to equities,” he said. “This is the reason we started looking for the alternatives manager back in April last year.”
Although Towey would not say how much capital LGT would be given to invest or which of the fund’s existing managers would see their mandates terminated or reduced in size, he confirmed that the initial proposal to allocate £200m-300m to LGT was accurate.
He also said he would not “rule out” any further fiduciary mandates.
“In the current climate, everyone is trying to diversify their risk as and when opportunities present,” he said.
The contract with LGT will run an initial five years, with the council reserving the right to renew the £12.5m deal for a further five years.
The Swiss company, with a number of satellite offices including one in London, successfully beat 10 other applicants to the mandate.
According to the fund’s most recent annual report, BlackRock was Hertfordshire’s largest manager, responsible for one-fifth of all assets, with Legal & General Investment Management in a close second, followed by Jupiter Asset Management.
Because the new fiduciary award will coincide with a shift away from equity, it is unlikely that BlackRock – Hertfordshire’s sole bond manager – will see its £500m mandate decline in size.
However, Jupiter and Baillie Gifford both oversee actively managed UK equity investments worth a combined £650m, and JP Morgan Asset Management, RCM and Global Thematic Partners are responsible for active global mandates each worth around £240m.
LGIM, meanwhile, handles £350m of passively managed global equities.