UK - The trustees of retailer WH Smith's pension scheme have moved to a liability-driven investing approach from State Street in a bid to limit volatility and cut risk.

"In September 2005, the trustees of the WH Smith Pension Trust adopted a new investment policy in order to limit the volatility in the underlying investment performance and reduce the risk of a significant increase in the deficit in the fund," the firm said today.

IPE understands the firm is using a solution from State Street – meaning a loss for incumbent manager Barclays Global Investors. A BGI spokeswoman was not immediately able to comment. Other losers are understood to be Capital International and Fidelity.

Last year WH Smith was the subject of a bid approach from private equity house Permira where the pension fund trustees played a pivotal role.

Since that time the scheme's deficit has worsened by £42m due to low bond yields.

A new LDI approach has been adopted with 94% of the assets now invested in inflation and interest rate hedged investments. The balance is in equity options.

The scheme was previously 45% invested in equities with the remained in bonds and UK government bonds. It is understood the trustees were not comfortable with the exposure to interest rate movements, inflation and equity markets.

The company, the trustees and advisors - Goldman Sachs, Deloitte, Mercer and Mayer Brown Rowe & Maw - have examined the options of the last year.

The company and trustees have also agreed a new deficit funding agreement, which will see payments of £15m in 2005/06, £17m in 2006/07, and £20m in 2007/08. The payments will increase in line with inflation (capped at 5%) until the deficit is repaid.