The South Yorkshire Pensions Authority (SYPA) has implemented a £2.6bn (€3bn) equity risk management strategy with Schroders, designed to insulate the UK public sector fund against a potential equity market downturn.

Schroders said the transaction aimed to both minimise overall costs and provide as “much upside potential as possible for SYPA”.

The £450bn investment manager declined to comment on a more detailed breakdown of those costs.

“The scope and complexity of this mandate emphasises the commitment of Schroders’ Portfolio Solutions team to work with clients to deliver bespoke strategies in order to meet their investment needs,” added Andrew Connell, head of the company’s portfolio solutions group.   

Equity protection strategies are becoming increasingly common among funds within the Local Government Pension Scheme (LGPS) as volatility returns to the markets.

In May this year, River & Mercantile Derivatives won a £1.2bn structured equity protection mandate from the £2.5bn Worcestershire County Council pension fund.

Schroders has implemented what is known as a “put spread collar” approach, which combines equity investment with a mixture of puts and calls, thereby allowing the manager to gain upside exposure but dampen downside risk.

“The rise in equity markets in recent years presents South Yorkshire, in common with many pension funds, with a new set of challenges to reduce the risk of negative market impacts while maintaining a focus on growth,” said George Graham, fund director of the £7.9bn SYPA. “This solution helps us achieve this in a cost-effective and transparent way.”

The deal – thought to be one of the largest involving an LGPS fund – included setting up a bespoke pooled fund to help cut SYPA’s administrative and governance needs, Schroders said. A spokesperson for the investment manager said the company would seek to execute similar strategies for other LGPS funds.

SYPA is a member of the 12-strong pool of pension funds that have formed the Border to Coast Pensions Partnership, itself one of eight pools established by members of the LGPS in England and Wales.