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West Midlands ditches hedge funds to reach benchmark allocation

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The £10.1bn (€13.3bn) West Midlands Pension Fund (WMPF) has announced it is divesting £200m from its hedge fund portfolio and will shift allocations to underweight assets.

The pension fund provides retirement income for public sector workers in the West Midlands, including Birmingham and Wolverhampton.

It allocates to a range of strategies and, aside from traditional equity and fixed income portfolios, has more than £600m in absolute return strategies across a range of specialist investment managers.

However, a spokesman for the pension fund said: “[The WPMF] is in the process of selling its hedge fund allocation amounting to just over £200m.

“The funds are to be allocated to other asset classes in which the fund invests, especially those areas where we are under-allocated.”

The spokesman declined to provide any further details on which asset classes would benefit, which managers would lose mandates or why the fund had taken the decision.

Hedge fund allocations have been placed under much scrutiny in recent months following the high-profile decision of the California Public Employees Retirement System (CalPERS) to divest its $4bn (€3.5bn) allocation over concerns about fees, complexity and inability to scale up to CalPERS’s size.

In Europe, the €156bn healthcare workers pension fund in the Netherlands, PFZW, also divested on the grounds that hedge funds no longer match its investment policy.

However, the WMPF’s move also comes at a time when local government pension schemes (LGPS) face increasing pressure to reduce investment costs, with hedge funds attracting more expensive management fees.

The UK government is currently consulting on whether to force the 89 LGPS to invest in alternatives via a collective investment vehicle, thus removing the ability of individual funds to choose their own hedge fund strategies.

It would also remove the ability to invest via funds of funds, deemed expensive by the central government.

Read Christopher O’Dea’s analysis on the fallout between hedge funds and pension schemes following the CalPERS’s decision

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