Several UK local authorities have put pension fund mandates up for tender. Dissatisfaction with investment performance was a motivating factor for many, while others are un-dertaking regular reviews of their management structure.

Performance was a major consideration behind London Borough of Tower Hamlets' decision to put the mandate for £150m ($244m) of its pension fund up for tender. Existing manager Gartmore failed to reach its target consistently over the last three years," says Jim Ricketts, group ac-countant. The fund had a customised benchmark, which Gartmore missed "by miles", but Ricketts points out that it "failed even to reach the median for local authorities".

The council has been happy with the performance of Schroders, which handles around £160m of its total £320m under management (there is also a £20m property portfolio). It is considering increasing the size of Schroders' mandate to take in the more conservative elements of the fund and allocating the remaining tranche to a higher-return manager.

Gartmore's performance was also an issue at the London Borough of Bromley. "There has been some dissatisfaction about certain areas of performance," explained Mike Pitt, assistant borough treasurer. "The returns have not been as good as we'd hoped." Gartmore failed to reach a target set at 0.5% above the local auth-ority average over a three-year rolling period. He said that he would be surprised if Gartmore decided to reapply for the mandate.

Bromley advertised the tender in late 1997 and had a good response. Pitt said that around 15 companies had expressed interest in the mandate with one week to go before the deadline for receipt of applications.

Bedfordshire County Council has undertaken a wide-ranging reorganisation of the management structure of its £490m pension fund. Currently it is managed in two tranches by PDFM and Gartmore. The investment panel has two reasons for seeking tenders. "Performance was one issue, but it wasn't the only issue," says spokes-man Hywel Jarman. "It was also time to have another look and to make some changes." The council's investment panel will be implementing a more flexible structure for its pension fund.

It will be divided into four sections, and the council is seeking external managers for three: a UK equity mandate amounting to £150m; an overseas equity mandate of £80m; and a UK and overseas fixed interest mandate of £60m. There is also a passive mandate, consisting of cash and equities amounting to £200m. Both current managers are expected to tender for one or more of the new mandates, and the council expects to draw up a short-list by the middle of February.

The London Borough of Richmond upon Thames is also putting up for tender a mandate currently handled by Gartmore. However, this is part of a regular three-year review process and not motivated by dissatisfaction with performance, explains Alan Nash, principal accountant. Richmond sets a performance target of 1% above the median. "It is standard, but still pretty testing," says Nash.

Gartmore has been invited to reapply for the £80m mandate. The great-er balance of the borough's £170m under management is in the hands of Schroders, with a portion of less than 1% handled internally.

The largest mandate on offer in the current round of retendering is by Kent County Council, which is re-viewing the management of two tranches of its pension fund, worth a total of £350m. The funds are currently managed by Barings and PDFM in balanced portfolios, and both firms will be invited to retender. The review is part of a regular annual evaluation, according to Jane Gibbons, senior investment officer. The remainder of the council's £1bn pension fund is handled by Schroders and Prudential Portfolio Managers. Stephanie Schwartz"

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