UK - The £4.3bn (€5.5bn) Merseyside Pension Scheme is seeking an European equity manager to run a portfolio valued at approximately £135m.
Wirral Borough Council has revealed the successful manager would be required to outperform the FT Developed Europe ex-UK Index by 3% per year - gross of fees and net of withholding tax - over a rolling three-year period.
The contract requires the manager to run an active, single European equity (ex-UK) portfolio, currently valued at £135m, for an initial period of four years, although there is the option to annually extend the mandate for a further four years following a review.
In November 2007, Merseyside Pension Fund agreed a new strategic asset allocation which increased its weighting in European equities to 10% of the 29% allocation to overseas equities.
The fund's European equities allocation is currently split between in-house management and an external mandate run by JP Morgan Asset Management, but the decision to tender a European equity ex UK portfolio follows the fund's decision to allocate £450m to 130/30 and unconstrained mandates for UK equities. (See earlier IPE article: Merseyside seeks UK 130/30 managers)
Minutes from the November 26 2007 pension committee meeting of Wirral Borough Council confirmed the fund was exploring the possibility of splitting its external UK mandate - previously run by Barclays Global Investors ((BGI) who had their contract terminated from December 11 2007 - into two or more unconstrained mandates. )See earlier IPE article: Merseyside looks set to drop BGI mandate)
A report to be presented by the finance director at the next pensions committee meeting has meanwhile revealed the Merseyside Pension Fund returned -1.3% in the year to March 31 2008 - an underperformance of 0.6% compared with its bespoke benchmark.
Although the report highlighted the downward correction in global equity markets following the 'sub-prime' losses in the US and the subsequent credit crunch, it claimed the "principal contribution to underperformance came from the active developed market equity mandates".
The report stated while emerging markets "outperformed their developed market counterparts" and the fund's Asia Pacific investments had a "positive outturn" in the year, it revealed UK equities exerted "the most significant detrimental impact".
In addition, the finance director has compiled another report for the meeting highlighting the issues facing the pension fund going forward, and in particular, reveals while the new strategic benchmark came into effect on April 1 2008, only the changes to the bond mandates have been completed.
The report warned although changes to the equity and alternative holdings has been initiated, the pension fund still needs to complete the following actions:
• Increase private equity and hedge fund strategies/weightings
• Appoint active UK and European equity managers
• Conduct ongoing review of existing mandates
• Implement the in-house fund-of-funds portfolio, and
• Consider currency management
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