UK roundup: Avon, JLT, PMI, Towers Watson, PPF
UK - Avon Pension Fund has ended its relationship with hedge fund of fund manager Lyster Watson due to concerns over the US company's ability to comply with incoming EU hedge fund legislation, following a review of its investments in the asset class.
The review, conducted by the local government scheme's investment consultants JLT, follows on from a previous examination of its strategic investment strategy in 2009 and looked at the performance of Lyster Watson, Signet Capital Management and Man plc, as well as Stenham and Gottex Asset Management.
Four of the five fund of hedge fund managers retained their positions, with the £2.5bn (€2.8bn) scheme deciding to maintain its 10% exposure to the asset class. At the end of March 2010, the scheme allocated £212m to hedge fund of funds.
Avon noted that while its hedge fund investments were successful insofar as they retained capital, it was underwhelmed by performance in the time under review.
However, as the period covered the recent financial crisis, it accepted the short-term performance was not indicative of what could be achieved going forward.
The review said further: "The allocation to hedge funds has brought diversification benefits to the overall fund in terms of lower volatility of return, and the workshop concluded that an allocation to hedge funds is still appropriate."
Of its five managers under review, only Lyster Watson lost its £10m mandate, with the scheme citing incoming EU regulations as a reason.
"As a US-based manager with limited EU clients, there is a greater risk in complying with the proposed EU-based regulations," the report noted.
Meanwhile, Signet Capital Management and Stenham Asset Management - which managed assets of £45m and £11.5m, respectively, according to the most recent annual report - will receive further funding, with Avon praising both companies' ability to deliver returns, as well as their focused investment strategies.
Man plc - which, with £95m, managed the largest share of FoF assets - will see its overall share cut. The local government scheme said this was due to significant change occurring at the company, as well as the underlying portfolio being highly diversified, "which could dilute the potential returns".
The final manager, Gottex Asset Management, will see its £51m allocation remain unchanged, with the scheme highlighting concerns over the use of market neutral strategies and the leverage it entailed.
The report said: "It was noted that Gottex has reduced the amount of leverage across the fund, but was agreed that the amount of leverage and the associated risks should be monitored by officers."
In other news, a survey by the Pensions Management Institute (PMI) and Towers Watson has found that more than 80% of pension schemes fail to communicate with scheme members via their website.
The survey also found that 88% thought interactive aspects, such as questionnaires, should be developed to grow members' understanding of investments and risk.
Vince Linnane, chief executive at the PMI, said: "Technology and the internet is becoming an ever increasing part of our lives, and this survey demonstrated how much websites have to improve to deliver the 'experience' we want scheme members to receive."
However, 60% warned that websites should not discourage direct contact between members and the scheme, despite the lower administration costs by providing self-service online.
Clive Witherington, director of business development technology and administration solutions EMEA at Towers Watson, said that despite their importance and the help websites could offer through out-of-hours communication, they should only form one of the avenues of communication.
He added: "Website design needs to incorporate the type of support and help members want alongside email, telephone contact and face-to-face interaction, as total automation cannot satisfactorily replace human contact."
Finally, the Pension Protection Fund (PPF) has confirmed that more than 40 schemes will transfer to the lifeboat scheme, bringing the total to more than 250.
By far the largest scheme to transfer in February was the Stoddard International Pension Scheme, with 1,525 members, while several funds cared for fewer than 10 employees.
A number of companies saw several schemes transfer, with Homeform Group, Denby and Lyndale Foods all seeing four of their pension funds entering. A total of 41 schemes transferred last month.