UK - Underperformance has seen AllianceBernstein lose a stake in a multi-million pound global equities mandate with a UK local authority pension fund, while another pension scheme has revealed its shortlist for timber and infrastructure mandates.

The £950m (€1.1bn) Highland County Council pension scheme has removed AllianceBernstein as manager of a £200m global equities brief, although it has retained the investment house for a smaller allocation.

Roger Niven, principal accountant for treasury and investments at the Highland County Council scheme, told IPE: “We have been looking at [AllianceBernstein’s] performance for a while and it was underperformance that led to us to take this decision. However we have kept them for a portion of the global equities allocation.”

AllianceBernstein had been on watch at the Scottish-based scheme since a “period of very poor relative performance” during 2007 and 2008.

At the time, Highland’s investment committee reported serious concerns about Alliance Bernstein’s investment process and risk controls. However, it was underperformance in the second quarter of this year that finally led to the clipping of the global equity brief.

Highland’s investment advisers, Hymans Robertson, are in the process of drawing up a list of alternative, value-based managers for consideration.

The investment committee stated that the “costs associated with the restructuring of investment portfolios had to be considered against the costs to the pension fund of poor investment performance”. 

Niven said the target size for the new global equity mandate would not be determined until the results of the fund’s March 2011 actuarial report were known later in the year, at which point a transition manager would also be sought to oversee the shift in strategy.

Meanwhile, the £1.5bn Suffolk County Council pension fund has allocated £105m to timber and infrastructure funds in a bid to better link returns to inflation.

The UK local authority scheme has shortlisted Kohlberg Kravis Roberts Infrastructure Partners and Partners Group for the £75m infrastructure brief, while Brookfield Asset Management and Timber Resource Group are the final two managers in the running for the £30m timber mandate.

Peter Edwards, corporate finance manager at the Suffolk fund, told IPE the move into alternative asset classes represented an important departure from an investment strategy dominated by equities.

“There are a number of drivers of the change. First, we wanted to get some diversification away from equities, so the funding for these new allocations will come out of our overall equity allocation.”

Edwards added: “The other motivation was the degree of inflation linked return provided by [timber and infrastructure] asset classes. Under the old investment strategy we felt there was relatively little inflation protection.”

The infrastructure and timber mandates will invest in both UK and overseas projects.

As part of Suffolk’s move into a better diversified, inflation-linked portfolio, the fund will make a £150m investment in absolute return funds.

The Suffolk fund is considering a longlist of investment managers, drawn by adviser Hymans Robertson, including pooled hedge funds and fund-of-hedge fund vehicles, as well as long-only absolute return products.

Edwards said: “Absolute return is about diversification. We are looking for inflation-plus returns which are largely uncorrelated with equity markets.”

The Suffolk pension fund will name its infrastructure and timber providers in November, while it plans to have absolute return managers in place at the start of next year.

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