The Copenhagen-domiciled Danish Pension Fund for Engineers (DIP), has just appointed Singer & Friedlander InternationalAsset Management in London to run a European small cap portfolioworth Dkr250m($37m).

The contract went live at the beginning of thismonth.The fund director Steen Villemoes says that the Dkr17bn fundwas attracted to the concept of having a small cap portfolio as a supplement to the larger equity portfolios it has."We believe it will advantageous from a diversification point of view."SFIAM were chosen from from a shortlist of four. "We were in serious discussion with DIP for six to eight months," says Peter Dencik, managing director of SFIAM.

The mandate its to outperform the benchmark, which is the Dresdner International Smaller Companies Index, by 1% per annum net of all costs over a rolling three year period, he says. "The actual range of companies is $50m in free float to $1bn market capitalisaation. It is a small to medium sized brief," he says. The spread is core Europe - EU plus Norway and Switzerland, but excluding Denmark.

He adds: "We cannot deviate more than 50% from the market weightings, provided the the country represents 10% of the bench mark. It means that we have to be invested in Germany, France and Italy."

Dencik thinks that increasingly there is a search for diversification in Europe, with pension funds looking for different ways of doing assset allocation. "Small companies seem to offer a way of obtaining diversification inside Europe, while larger companies can be expected to move more and more in line." More and more pension funds are showing interest in the smaller caps atrea, says Dencik.

He also believes the pattern is towards specialist managers on the Continent. This is a trend that is developing in the UK as well," he adds.

Earlier this year, SFIAM was awarded a similar brief by the Belgian-based fund for the medical profession VKG/CPM. This was for ex-Belgian companies and also used the Dresdner index as the benchmark."