UK – The £50bn (€74.2bn) pension scheme of phone firm British Telecom may allocate a “single figure” percentage of its assets to commodities from its equity portfolio by the end of the year.

Charlie Metcalfe, deputy chief executive of Hermes Pensions Management, the scheme’s asset manager, said:“ It is not a process that happens overnight.”

He told IPE that if everything ran smoothly the commodities investment could take place within the next three to five months.

He said that trustees needed to grasp how commodities worked but added that they are “more understanding and sympathetic now than they were six months ago”.

“It would probably be a single–figure allocation to begin with. But it is a £50bn fund, so 1% of our fund is £500m. Even if we only invested 1%, it would be a meaningful amount of money,” Metcalf said.

“Whatever our allocation is at the beginning, commodities are a good thing. You can allocate a quite substantial amount to commodities and still get the benefits of diversification,” he added.

The BT scheme would fund the commodities investment with resources diverted from its equity portfolio, Metcalfe said.

He observed that commodities, especially energy, are negatively correlated with inflation and “highly” correlated with inflation. BT’s new allocation would be invested through a vehicle, as opposed to using swaps, he also said.

The fund would also choose an index as a benchmark. BT allocates 61% to equities and up to 25% to bonds. Two percent is invested in hedge funds, more than twice that is in private equity, with 12% in property.


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