North Yorks to drop Hermes European focus
UK -North Yorkshire County Council has decided to divest its £878.8m (€979.4m) pension fund from a holding in the Hermes Focus Asset Management’s European Focus Fund, following a combination of poor performance and staff departures.
The decision by the council’s pension fund committee follows Hermes’ restructuring of its investment funds from three to two, as of January 2009, which sees the UK large cap fund being wound-up, the European fund becoming pan-European but the UK Mid/Small Cap Fund remaining as it is.
At the latest meeting of the North Yorkshire pension fund committee last month, members were reminded the council had agreed in September 2008 to transfer its £9m investment in the UK large cap fund into the European fund, where it had a £20.4m holding at the end of December 2008.
It was agreed that “further consideration” of the investment would be made before the end of the year, and in November the committee agreed “that the investment in the Hermes European Fund be retained for the time being, with the investment continuing to be monitored and by updates provided to subsequent meetings of the committee”.
Committee members were told £7.7m of cash, resulting from the liquidation of assets in the UK Large Cap Focus fund, had been transferred to the pension fund’s cash account rather than the European focus fund because of a delay in the transition of the Focus Fund restructuring programme and a “comprehensive review” of investment strategy by the Hermes management team following poor performance.
In addition, a report presented to the committee at the February meeting highlighted a number of changes to the senior management team of the European Focus Fund, including the departures of Wouter Rosingh, Bertrand Biragnet and Stephan Howdalt.
As the presence of the departing staff “was, and has been, an important factor in choosing to invest in the European Focus Fund”, the document asked members to consider whether the staff changes, combined with the recent performance of -20.6% - against the benchmark for the year to December 2008 - “should prompt a decision to disinvest from the European Fund”.
Additional figures presented to the committee showed the ‘loss in value’ of the European Focus Fund in the 10 months between March 2008 and January 2009 was €20.3m, compared to a benchmark loss of €10.7m, while the focus fund’s return for the fourth quarter of 2008 was -13.7%.
As a result, North Yorkshire council confirmed the committee had agreed to divest from the European focus fund, but under the terms of the partnership agreement with Hermes divestment is allowed on the anniversary date of 1 January and the fund needs to provide notice of the decision to extract funds by 30 September.
Although discussions are continuing to see if it is possible to liquidate the funds earlier, it is likely the money will not be available until the end of 2009 and it is unclear what the money will be allocated to, as North Yorkshire pointed out it would “depend on the position of the pension fund”.
That said, council officials confirmed no money had yet been allocated to the indirect property mandate, awarded to ING in November 2008, so one possibility is the first funding could come from the liquidated focus funds. (See earlier IPE article: North Yorks awards ING global property mandate)
North Yorkshire’s decision to pull out of Hermes Focus Fund’s follows a similar move by Gloucestershire in July last year following disappointing performance, while the BT pension scheme, which is managed by Hermes, highlighted certain focus funds were the most significant contributors to an overall negative result for 2007. (See earlier IPE articles: Gloucestershire loses ‘focus’ on Hermes and Focus funds ‘disappointed’ BT scheme in 2007)
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