Top UK fund may invest upt o 20 pct in alternatives

Date: Friday, April 17, 2009
Author: Raji Menon, Reuters

The UK's largest pension scheme, the BT (BT.L) Pension Scheme (BTPS) could invest up to 20 percent of its assets in alternative asset classes including hedge funds, a senior executive in charge of its investments said.

Frank Naylor, head of investments at Hermes Pensions Management, told Reuters the pension fund had also reallocated $1.2 billion to two new fund of hedge funds (FOHFs) launched by its hedge fund boutique Hermes BPK.

Hermes Pensions Management is responsible for BTPS's investments and is part of Hermes, the UK fund manager fully owned by BTPS, which has assets of about 36 billion pounds ($53.46 billion).

"We have a rolling programme to allocate away from equities and into index-linked gilts and other return seeking assets such as absolute returns," Naylor told Reuters.

"Allocation to alternatives could rise to 15-20 percent over a three-year period."

An absolute returns strategy -- which aims to generate positive returns regardless of market conditions -- includes investments to commodities, private equity, hedge funds and infrastructure.

Naylor declined to provide exact details on the scheme's current allocation to absolute returns and also declined to give details on the increased level of allocations to specific asset classes.

In December 2007, the pension fund had allocated 13 percent to alternative assets. Allocation to equities has declined to 30 percent, from 50 percent eighteen months ago.

HEDGE FUND FOCUS

Although Naylor declined to say how much the pension fund's allocation to hedge funds would rise to, he said the new allocation would be "significantly larger". At end-2007, the pension fund had 5 percent allocated to hedge funds.

Most of the scheme's current allocation has now been reinvested with Hermes BPK following a decision to wind down its current Guernsey-based vehicle -- Hermes Absolute Return Fund during the course of the year.

Naylor said new allocation to hedge funds would be made through other FOHFs and direct investments.

Hermes BPK, which was set up in at the end of last year, launched its first restructuring fund of hedge fund in January and a multi-strategy fund of hedge fund recently.

BTPS allocated $300 million to the restructuring fund and $900 million to the multi-strategy fund. (For the Hedge Hub blog: blogs.reuters.com/hedgehub) (For Global Investing: here)) (Editing by Andrew Macdonald) ($1=.6734 Pound)