Billion pound council pension fund in hedge bet

Date: Thursday, April 30, 2009
Author: James Molony, Reuters

Berkshire County Council's 1.05 billion pound pension fund has made a decisive move into hedge funds as part of a new 17.5 percent allocation of assets to alternative investments.

The scheme has decided to allocate 7.5 percent to hedge funds alone, at the highest end of exposure currently taken by traditionally conservative pension funds.

It has also more than halved listed equities exposure in a bid to generate more stable returns and diversify its portfolio.

The hedge fund move is further evidence that domestic pension funds are keeping faith with alternative asset classes despite the fact they have offered little protection from the steep declines in financial markets over the past 12 months.

Hedge funds made a loss of 19 percent in 2008, according to Hedge Fund Research.

In March, the 6.5 billion pound West Midlands Pension Scheme moved 8 percent of assets into absolute return strategies including hedge funds. The 23 billion pound Universities Superannuation Scheme has confirmed it plans to gradually double its overall alternatives weighting to 20 percent.

The Berkshire fund, which manages the pension assets of local government employees in the Borough of Windsor and Maidenhead, has also made its first investments in commodities and infrastructure with allocations of 9.2 percent and 6 percent respectively.

Morgan Stanley and Neuberger Berman have been appointed to run Berkshire's commodities portfolio and Macquarie Capital Funds will run the infrastructure assets.

The new alternatives allocation includes a 7.5 percent allocation to Lyxor's hedge fund managed accounts platform -- which is designed to provide added transparency and liquidity -- and allocations to active currency, asset-backed finance, and insurance-linked securities.

Listed equities exposure has been cut to 22.5 percent from 65 percent while exposure to private equity will double to 10 percent.

The fund has hiked exposure to bonds to 24 percent from 19 percent awarding new high yield mandates to U.S.-based Muzinich and Legal & General.

Property exposure will be raised to 10.8 percent from 10 percent all through funds rather than direct investment. Aviva Investors has been appointed to run a property mandate.

"We're trying to reduce equity risk so the scheme is not totally dependent upon the returns from one particular asset class while maintaining exposure to a diversified portfolio of growth assets," Nick greenwood, pension fund manager, said.