UK - The £5.5bn (€7bn) defined benefit (DB) section of the UK IBM Pension Plan made three manager changes in 2007 in addition to allocating over 10% of its assets to a pooled liability-driven investment fund run by Barclays Global Investors (BGI).

IBM's annual pension fund report for 2007 showed the scheme - which reported a surplus of £228m and funding level of 105% at its last valuation in December 2006 - returned just 6.9% over the year compared to the benchmark of 7.5%.

Figures also showed the fund's asset allocation underperformed over three and five year periods, with respective returns of 11.7% and 12.8% (gross of fees) against the benchmark of 12% and 13.2%.

IBM claimed the underperformance in the short-term was triggered by bond mangers holding a large portion of their portfolios in the financial sector, while the property manager, CBRE Investors, and "most active equity managers" apart from the global equity manager, Frank Russell Investments, "underperformed their benchmarks to varying degrees".

IBM claimed "several of the active managers" in both bonds and foreign equities had failed to meet their benchmarks over the longer term, which it revealed "has resulted in a materially different manager line-up for the future, especially in equities".

The annual report confirmed in 2007 IBM terminated a Japanese equities mandate run by Schroder Investment Management, and instead awarded 3.4% of its assets, valued at £194.7m at the end of December 2007, to a Japanese equity mandated managed by Legal & General Investment Management (LGIM).

In addition, the pension fund replaced Record Currency Management, responsible for currency hedging, with Russell Implementation Services, while a UK equity portfolio run by State Street Global Advisers (SSGA) was terminated in April 2007 and replaced by BGI, with assets valued at £436.1m, or 7.9% of the fund, at the end of 2007.

However, IBM also confirmed it allocated £565.4m to a pooled LDI fund run by BGI, the LDI 640 series 1 fund, in July 2007, which was equivalent to 10.2% of the fund's overall assets.

IBM revealed the LDI fund contains a number of interest rate and inflation swap contracts, with the aim of hedging "some of the interest rate and inflation risk in the plan's bond investments" - approximately 35.5% of assets - "relative to the liability profile of the plan".

However, figures from the report showed the value of the swaps at the end of 2007 was £23.9m, while the bulk of the investment in the LDI vehicle, £485.1m, was held in a BGI UK equity pooled fund, alongside £56.4m held in a BGI cash fund as collateral for the swap contracts.

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