PORTUGAL- Portugal’s state owned e3.8bn FEFSS fund is looking for a global custodian in preparation for its recent decision to outsource 20% of its e3.8bn portfolio to external managers. Henrique Cruz, a member of the fund’s board says they will select a global custodian by March to provide fund administration services.

The fund manages the total portfolio in house but Cruz says that if they get the go ahead from the ministry of finance they are likely to distribute 20% or e760m to external managers by next year.

“We are preparing a structure for outsourcing and to be prepared we think we need some more value added services in terms of custody and fund administration,” he says.

At present it uses two local banks for custody and administration but Cruz says they have yet to decide whether the new custodian bank will take over all the business or whether they will maintain the existing agreements.

Earlier this month, and also in preparation for outsourcing the assets, FEFSS started looking for what Cruz calls an IT solution to the back and middle office. “We have the structure to manage in house but we think we need more value added services in order to control the outsourced assets,” he says.

The fund is unable to disclose which assets it is considering outsourcing. But the fund is recommending the government loosen the numerous investment restrictions imposed on the fund. At present it only invests in Euro denominated assets and the fund is unable to take any currency risk. It also has to invest a minimum of 50% in Portuguese bonds and a maximum of 20% in equities.

The change in strategy depends on approval from the government to pay the extra commission to external managers. “We have the documents for the public tender almost ready but we don’t have the green light from the government yet.” Cruz is confident the government will approve the funds’ decision but elections next month could throw the plan off course.