UK - The £8.39bn (€9.6bn) Strathclyde pension fund is considering the creation of a "new opportunities" portfolio following the conclusion of the triennial review of its investment strategy and structure.

At the latest meeting of the Strathclyde Pension Fund Committee earlier this week, members of Glasgow City Council agreed a new strategic benchmark for the scheme, particularly within the equity portfolio.

The overall asset allocation remains steady at 73% in equities, 12% in property and 15% in bonds, however the scheme has reduced its allocation to active equities in favour of passive exposure.

As a result the equity mandates currently run by Capital International and Bailie Gifford are being reduced to 9% and 11% respectively, with both portfolios moving towards a global (excluding US) benchmark instead of the current regional allocations.

The committee decided the efficiency of the investment structure could be improved by limiting the active exposure to US and UK equity markets, and instead the passively managed equity portfolio run by Legal & General will be increased to 27.5% of the fund, to include a large US component and no Japanese or Pacific exposure.

This leaves the pension fund, valued at £8.39bn at the end of July 2009, with a target benchmark of 18.5% in UK equities, 14.5% in overseas equities; 20% in global (ex US) and 15% in global equities, while 5% is invested in private equity.

Meanwhile Strathclyde is examining the possibility of creating a "new opportunities" portfolio. This would have a "very broad remit to invest, on an opportunistic basis, in assets for which there is an attractive investment case but to which the current structure does not provide access".

It is suggested the portfolio would allow the pension fund to overcome "some constraints of size and categorisation" that mean it cannot take advantage of the opportunities available, and it is likely that if it is established it would have "more direct investment in smaller asset pools with less diversification".

Strathclyde pension fund has already overhauled its bond portfolios with the termination of contracts with Henderson and Western and the appointment of PIMCO and Threadneedle on an absolute return basis, which according to the scheme will be funded in the fourth quarter. (See earlier IPE articles: Strathclyde deficit hits £2.6bn and Strathclyde targets absolute return bonds)

The new strategic benchmark, to be implemented in the fourth quarter of 2009, will see PIMCO take responsibility for 5% of the fund, Threadneedle for 2.5% and Legal & General will run 7.5%. Over the long-term L&G's benchmark for the portfolio is 40% in corporate bonds, 40% gilts and the remainder in index-linked gilts.

However in the current market conditions the committee agreed a short-term strategy of 80% corporate bonds and 20% index-linked in an attempt to "reduce the costs of transition and maximise the retention of value from the current structure".

In addition Strathclyde pension fund signalled its intention to review its property strategy through a tender process, in the form of one or more mandates, to "explore the potential value of extending the property allocation to include some overseas exposure".

Although the committee noted the incumbent property manager, Aberdeen Property Investors, would be expected to participate in the tender and the benchmark allocation to property should remain at 12%. The tender process is expected to begin in the next month and conclude by the middle of 2010.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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