UK - The £39.7bn (€49.7bn) BT Pension Scheme (BTPS) has revealed investment in the scheme's activist Focus fund range "disappointed" in 2007, following growing uncertainty in global equity markets and increasing investor caution.
Figures from the pension scheme annual report for 2007 revealed the UK (large cap) and Japan Focus Funds "were the most significant detractors from overall scheme performance" during the year, with returns of -14.06% and -10.91% respectively.
In addition, the report showed the European Focus Fund recorded a -2.66% relative return, as the growing uncertainty across global equity markets and a rise in investor caution "worked acutely against the turnaround investment approach of the focus funds".
The publication of the figures comes as Hermes, operator of the Focus funds and wholly owned subsidiary of the BT scheme, announced a restructuring of the funds from January 2009, which will see Hermes Focus Asset Management and Hermes Focus Asset Management Europe, which have combined assets of £2.3bn, merge into a single partnership.
The new partnership structure will be jointly owned by Hermes and the executives of the partnership, who will have "a significant stake" in the structure, with more than 10 senior executives expected to become equity partners.
Rupert Clarke, chief executive of Hermes, claimed the new partnership would provide clients with an enhanced offering, "while ensuring that executives are well incentivised to deliver strong performance".
As a result of these changes, the three UK and European pension funds will be amalgamated into two - a pan-European Focus fund covering both the UK and continental Europe, and a single UK-only fund.
The BTPS report also revealed the scheme's emerging markets equity portfolio, managed internally by Hermes, also underperformed in 2007, as it was "impacted by late year volatility".
In addition, the European equity portfolio run by Capital International underperformed it's index by -4.69% in 2007, and following continued underperformance BTPS confirmed the mandate - valued at £479m at the end of 2006 - was terminated on March 6 2008.
However, despite the poor performance of some parts of its portfolio, figures showed the net assets of the scheme increased by £1.3bn to £39.7bn over the year, following an overall investment return of 6.4%, compared to a benchmark of 5.9%.
BTPS confirmed that as part of its de-risking strategy it reduced economic exposure to equities from 57% at the end of December 2006 to around 44% in 2007, and "this reduction has continued during the first quarter of 2008".
The report highlighted that "in the short term this has turned out to be a prudent move", as the large amount of volatility in the last six months "has affected the value of the scheme's assets".
However it claimed, "given our deliberately defensive position, the fall in value has been contained to less than 3% by mid May".
Figures in the report showed an interim valuation by the scheme actuary at the end of 2006 estimated a scheme funding level of 96.8%, and a deficit of £1.3bn. However, the report revealed that while the funding level was believed to have exceeded 100% during 2007, increased volatility towards the end of the year meant it was estimated to have fallen back to 97%
At the end of 2007 the asset allocation of the fund was 18.6% in UK equities; 26.9% in overseas equities; 21.5% in fixed interest; 15.4% in property; inflation-linked investments was 10% of the portfolio and the remaining 7.6% was invested in alternatives.
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