UK - Suffolk County Council has confirmed it has suspended the procurement process for a transition manager after it had problems with offering the contract on a contingency basis.
An investment update scheduled to be presented to the council at the next meeting of the pension fund committee on 28 July 2009, noted the committee had initiated a selection exercise for one or more transition managers in March, to be appointed to the £1.1bn (€1.27bn) pension fund.
The scheme had previously used Lehman Brothers in 2007 when it had appointed three new investment managers - BlackRock, JP Morgan and Newton - but it felt as it was possible that the fund may need transition services "at some future time" so a new manager should be appointed.
Following the decision in March, the investment update noted the contract was envisaged to be on a contingency basis, where the appointed manager would not receive a fee unless they were required to undertake a specific transition exercise.
However, Suffolk Council noted: "It has subsequently become clear, after consultation with the council's own procurement department, that there is considerable difficulty in making an appointment of a manager on a contingency basis, where the potential fees that may be paid for the services would not be determined until and unless the manager was actually requested to carry out a specific transition for the fund."
It admitted it would be possible to make an appointment under a framework contract, but argued this would "involve additional complexity to the selection and contractual process", therefore it confirmed the procurement process has been suspended, and if the committee decides to make changes to the investment managers in the future it would initiate a tender search for a transition manager "based on the specific scope of the individual transition".
The council has meanwhile confirmed it had also decided not to proceed with a £20m investment into the M&G UK Companies Financing Fund, as officials felt it was not clear if the underlying assumptions of the investment fund "were realistic".
In its meeting in January, the pension committee considered a report in investing in the M&G fund which aimed to provide financing for UK quoted companies that were having difficulty raising money in the credit crunch, and agreed to invest £20m subject to further investigations.
As a result of these investigations, Suffolk Council noted that while the proposition was interesting "it was not clear whether the assumptions underlying the fund were realistic, and inevitably there was a lack of a track record of past management of this type of investment to demonstrate the credentials of the management".
It also said the proposed investment would be less than 2% of the fund and would be "unlikely to make a meaningful difference to the fund's overall return, while requiring a disproportionate amount of management time to carry out the necessary oversight of the manager", so it decided not to proceed with the investment.
Furthermore, an actuarial report to be presented at next week's meeting suggested the funding level of the pension fund might have improved slightly in the second quarter of the year to around 61%, following stock market rallies.
Previously draft figures for the year ending 31 March 2009 showed the value of the scheme had fallen from £1.302bn to £1.055bn, to increase the deficit from £158m to £690m and reducing the funding level from 89% at its last valuation in 2007 to 60.5% two years later. (See earlier IPE article: Suffolk No.1 fund deficit nears £700m)
However, a report from Hymans Robertson noted the average funding level for the typical local authority pension fund fell from 85% funded at March 2007, to 60% funded at March 2009, followed by a slight improvement to 61% at June 2009, and added: "It is likely that the funding level for the Suffolk pension fund at June 2009 will be around 61% as well".
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