UK – Shropshire County Council has announced a change in its pension fund benchmark with greater allocation to bonds and the introduction of a hedge fund portfolio.
Currently around 72% of the 550 million-pound (789 million-euro) fund is invested in quoted equities, around eight percent in alternatives and 30% in bonds. The local authority has now decided to reduce its allocation to equities to 57% and increase investments in bonds and alternative assets.
Two bond mandates are now being put out to tender – a passive UK index-linked bond mandate worth 10% of the fund, and an active UK aggregate and global aggregate mandate each worth 7.5% of the fund.
The UK index-linked portfolio is being included to match liabilities, while the UK and global aggregate mandates have been altered to reflect the change in bond markets to a more global mentality. Henderson Global Investors is currently managing the scheme’s bond assets, and will be invited to re-tender.
In alternative assets, the fund allocates around three to five percent to private equity and five percent to property. In order to diversify the fund’s exposure, and comply with Myner’s recommendations to invest in alternative assets, the exposure has now been upped to 18%. A hedge fund of fund mandate accounting for 10% of the fund is being tendered.
The deadline for initial expressions of interest is August 14, with managers expected to have been appointed by January 1 2004.
Consultants have this year been urging UK pension funds to increase exposure to bonds to better match liabilities, while equally encouraging exposure to hedge funds of between 5-10%. Local authorities often prove the most difficult to convince, but investment managers are confident that when a handful of local councils agree, more will follow.