The VKG pension scheme for doctors, dentists and pharmacists in Belgium has appointed two currency overlay managers, AG Bisset in the US and State Street Bank in London.

Karel Stroobants, joint managing director of the scheme, says the decision was taken after detailed consideration of the risks from the currency exposure in the fund's portfolio. There is risk from currency volatility, but there is no long-term higher return as payment for this."

The decision was to appoint two active managers with programmes aimed at lowering volatility while not reducing returns. "Our target is to lower the volatility between 1 and 2%." The reason for active managers was not to miss any market upswing and not just for downside protection. Having two managers would put them in competition, he says. "It is so hard to make evaluations about the technical models, the only way to do it is by trying it."

Both styles and models of the managers were completely different and both had their strong points, says Stroobants. "We did five-year back testing, which was positive. The added-value is a bit different between both. Bisset has a nice track record and good references, high quality as a manager, and their programme does not involve many transactions, just two or three a year."

State Street had the advantage of being able to integrate with the portfolio. "As they are our custodians, so administration aspects are easy. We also use them for our risk measurement and value-at-risk technology. Their programme of currency overlay is well integrated in that philosophy."

VKG considered some other active managers. "Other managers are passive or what I call the fundamentalist, and I don't believe in those," says Stroobants. The overlays are divided 50/50 and will apply to all non-euro currencies, which amounts to 40% of the portfolio.

Ulf Lindhall of AG Bisset in Connecticut says the firm was very pleased to win this mandate, along with the others it has on the continent. At State Street in London, Jeremy Armitage says: "It is very exciting to be at the forefront with a fund such as VKG." Fennell Betson"

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