| In pursuit of pure alpha, West Midlands initiates new position in currencies |
|
|
| 07/01/2007 | |
|
The £7.1bn West Midlands Pension Fund is cultivating a palate for alternative investments which includes active currency. The fund recently awarded three actively-managed pure alpha currency mandates, the first time it has ever done so, placing it in the vanguard of local authority pensions with exposure to currencies. The move could help West Midlands exceed its 7.8% return benchmark by 1% per year, says Judy Saunders, CIO of the fund. West Midlands, which at the last actuarial valuation had a funding level in the mid 80's, awarded the mandates to three currency specialists: UK-based Record Currency Management, BNP Paribas Asset Management UK Limited and US-based Mellon Global Investments. The currency allocation accounts for 1.5% of the fund, about £110mn. The allocation reflects a strategy in favour of diversification as evidenced by the portfolio's asset mix: 70% in listed equities of which 37% is in the UK, 27% in regional overseas equities (mixture of passive and active) and 6% in active global where the managers decide on country allocation. The fund has 15% in fixed-income and 15% in alternatives of which 8% is in property and 5% in private equity. About 65% of the assets in the fund are internally managed and there is an in-house team of eight portfolio managers plus support staff. Approximately 60% of assets are actively managed. Separate from the stand-alone currency mandates, West Midlands plans to introduce a passively-managed in-house currency overlay to hedge its international equities exposure, says Saunders. A rarity among local authorities, the fund has also been investing in private equity for 25 years, mostly into direct funds. It has more than 140 different funds with exposure in Europe, the UK and USA. Private equity has added around 1% per year to the fund's returns. Looking ahead, Saunders anticipates a small decrease in quoted equities in favour of alternatives. The move, she stressed, is not a verdict on equity valuations but rather a compliment to its existing equity position which remains sizable. "Our fund does not have a herd approach. We are quite forward thinking in the investments we are prepared to look at and diversification is an important part of our approach to risk management." But the fund's fundamental drive is to exceed the market returns and to produce alpha. "The currency mandates form part of the fund's alternative investments and is part of our risk budget." West Midlands has also made small initial investments in commodity, emerging market debt and infrastructure funds in a bid to exceed market returns and provide diversification. That approach worked well in 2005 when the fund returned 21.1%. One alpha seeking asset-class, however, that it has not embraced is hedge funds. As the headlong rush into hedge funds continues, West Midlands' trustees remain concerned that the industry lacks transparency and that fees are too high, says Saunders. The fund provides pensions for employees in seven local authorities. It has a membership of 220,000 of which 57,000 are pensioners. "We've had top quartile performance in the last two years and hope to see an improvement in our funding level after our actuarial valuation in March," says Saunders. She joined West Midlands 23 years ago and assumed the role of CIO in the spring of 2005. The fund's return for the twelve months to September 2006 was 13.6%. VB |
|
Articles of the same Topic : Pension funds UK
|
|
© Copyright 2008 bfinance. This document is for your personal non-commercial use. Any further copying, reproduction, distribution is strictly prohibited. To obtain permission please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it