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UK £1.7bn fund seeks private equity managers

UK – Leicestershire County Council is seeking one or more private equity managers for some £50-75m (e80-e120m), or 3-5% of its £1.7bn total pension fund assets, according to Colin Pratt, investment manager at the council.

“ The agreement, at the moment, is 3-5% of the total fund assets, in broad terms it will be between 50-75m built up in 3-5 years,” says Pratt.
“ It’s part of an on-going review process but the prime reason is the scope to add a relatively small amount of added value whilst reducing the overall risk of the fund, so it’s a search for alternative asset classes that can generate excess returns,” he adds.

Whether the mandate will be split between more than one investment manager depends on the offers the fund gets during the tendering process.
Pratt says: “If we do go down the fund of funds route, it may that a single ‘gatekeeper’ may not be raising funds on an annual basis that is in-line of our requirements, so it might be necessary, from a timing point of view, to use more than one gatekeeper.

The county council has not decided yet it wants an active manager or a fund of funds provider.
“ We are saying that we do want to get money invested, we want to get it invested in a phased way, and also get it invested in a sensible way that fits in with the overall policy of the fund. If that means using more than one gatekeeper we’ll do that, and we’ll use just one gatekeeper if we find one that we are happy with, but at the moment we’re leaving our options open.”

Leicestershire’s pension fund is a net flow fund and Pratt says that the new investments will be funded mainly with new money: “We expect to fund the investment phase more or less in new money flows, so we don’t expect to take money away from our other asset managers. But from a benchmark point of view, as our private equity exposure increases, our exposure to quoted equity will decrease by a similar amount.”

The fund is currently 75% invested in equity, and the rest is in bonds, property and cash, according to Pratt.
Hymans Roberts acts as the pension scheme’s investment adviser.

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