PORTUGAL – The e3bn Lisbon based Portuguese pension reserve fund, created in 1989 to plug the future hole in Portugal’s social security retirement payments, could outsource up to 20% of its assets to external managers by the end of the year.
The fund, which until now has been exclusively managed in-house, began two years to liberalise its investment regime from a 100% public debt level and brought in investment professionals to run the assets.
Current investment restrictions for the fund are a minimum 50% in Portuguese public debt, a 20% maximum in equity, 30% in real estate and 49% in other fixed-income.
The fund is not allowed to take any currency risk.
Pedro Barroso, head of investments at the fund’s management institute, comments:
“ Until now everything was managed by the fund, fixed-income equities, cash real estate.
“ Next we are preparing an international tender to have new mandates.
“ Even if we stay at the same level of restrictions we would like to have some specific mandates because we want to be in competition with these mandates.”
While Barroso says he is not yet sure what type of mandates will be tendered, he adds that they are likely to be in European equity and fixed income.
“ We think that by the end of this year we could have mandates in the community journal.
“ We have to make a public dossier first.”
Suggestions have been made in Portugal to decrease the 50% level in domestic debt and introduce some freedom with currency risk.
Barroso adds that he is optimistic that the restrictions might be relaxed.
One reason he cites for this is that new Portuguese law says the fund has to hold a minimum level of two years payments of Portuguese pensions.
He points out that this is something like five times the amount the fund has at the moment.
Equity allocations were recently upped to 4% from 0.01% last year and Barroso says the fund will increase its share allocation to ten per cent when the market timing is right.
The fund will also tender for a global custodian, says Barroso: “We know there are just four or five international banks that could give us the added value that we want. We want to increase to have a very high level of risk management that does not exist in Portugal and we want to have a custodian that could help us in this area – even to control the mandates.”
Consultant William M.Mercer was appointed earlier this year to help the fund in its manager searches.
" We could do it ourself, but we are a public institution and so we have to be very clear about these things," says Barosso.