Citigroup Asset Management in London has been selected by NLG110bn (e50bn) Dutch superfund PGGM to run an e500m euro cash mandate.
PGGM, the Dutch pension fund for health sector workers, selected Citigroup from a shortlist of four investment managers and has already begun the cash transfer.
Piet Roelandt, senior investment manager at PGGM, says the fund started operations this month – in conjunction with a wider programme of investment in commodities – and that it will initially hold €500m.
“As we are holding this cash on a long term basis, we are hoping to generate additional returns, over and above the 6-month Euribor benchmark of the fund, “ he notes.
Roelandt explains that the fund’s investment in commodities, a strategy, which uses derivatives such as total return swaps and futures, means PGGM has to keep a cash position in order to prevent leverage.
This cash position has to be equal in size to the total commodities exposure of the derivatives. On a monthly basis PGGM’s positions are rebalanced to ensure this.
He says the fund’s criteria in selecting a manager to run the cash brief included money market fund expertise; particularly within the US marketplace, but also in the Euro markets.
The fund also looked at investment process, particularly in relation to new instruments, operational systems and procedures, and whether the manager had “strong credit risk management capabilities,” he adds.
What especially impressed PGGM was the offer by Citigroup of a dedicated fund structure:
“Citigroup came up with this solution, independent of ourselves, as they had offered this to other institutions,” says Roelandt.
Paul Timlin, director Europe -business development at Citigroup Asset Management in London, comments that the structure is attractive for pension funds:
“ The fund structure itself is designed to operate within a wide variety of mandates, for example as well as the PGGM win we also have a sub fund created for a corporate bond mandate.
“ What it offers is the flexibility and simplicity of the separate account with the single price element.
“ It shows that the trend in the 90s for smaller and medium sized pension funds toward pooling their assets can also be used for the largest of funds.”
PGGM says the initial investment with Citigroup could be increased in due course once the new fund is operating successfully.