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LPFA assesses need for second currency mandate

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UK - The £3.5bn (€4bn) London Pensions Fund Authority (LPFA) has held off from funding a second active currency mandate as officials are debating whether it would be preferable to invest in a broader mandate.

Minutes from an LPFA investment committee meeting held in November 2009 revealed assets in both the Active and the Pensioner Sub-funds had increased in the third quarter of the year by £238m and £72m respectively.

The update on the performance of the funds and its investment managers said private equity had performed poorly in the three months to 30 September 2009. Despite this, it was believed the assets managed by the LPFA, particularly in the pensioner sub-fund, had benefited from the investment strategy in the second half of the year. (See earlier IPE article: Global downturn knocked 21% off London fund)

The investment committee had ratified the appointment of Millennium Currency Management in September as a second currency manager alongside Record Currency Management, subject to due diligence.

However, discussions at the following committee meeting ended in a postponement after talks to determine they should fund the new mandate with the proceeds from a terminated target return allocation held by UBS until the end of 2008.

The investment committee said it had decided not to invest with Millennium "at this point and to consider whether another broader fund would be preferable". In the meantime, the due diligence process is continuing although officials added "any investment [would] be postponed until further discussion had taken place. The selection of a possible replacement fund should take into account the existence of the mandate with Record".

It is expected that the results of the assessment will be reported at the next committee meeting in March 2010.

Other decisions confirmed at the meeting included an agreement in principle to invest 2.5% of the proceeds from the UBS termination into corporate bonds, pending further investigation into the type of fund required.

Meanwhile, a review of its investment managers over the period revealed the LPFA is retaining its mandate with ECM, although it remains under watch following a decline in their risk rating to BBB+.

A decision by Blackrock to invest directly in swaps, which is in conflict with LGPS investment regulations, meant the LPFA was forced to unwind the position ahead of clarification from the new LGPS investment rules.

The recent changes to the LGPS and the sustainability of the scheme in the future will also be the subject of a symposium organised by the LPFA next month. It said the aim is to bring together a range of interested parties to develop a consensus on possible options for change. (See earlier IPE articles: UK government 'acting too slowly' on LGPS and Merging LGPS 'impossible' for governance reasons)

Mike Taylor, chief executive of the LPFA, said: "This event will enable all stakeholders to debate the real issues, and our hope is that this will mark the beginnings of a consensus on the best way forward. If this debate achieves such a consensus, it will be much harder for politicians - regardless of the result of the next election - to ignore."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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