UK - Two of the UK's largest pension schemes are considering allocations to hedge funds.
The £13bn Railways Pension Scheme is looking to invest up to 5% of its assets while the £15.6bn Royal Mail Pension Plan is also considering a mandate.
Both schemes say they are considering the move to diversify their assets.A source at the Railways Pension Scheme said that if it proceeded with the move, the selected hedge fund manager’s brief would be to achieve returns of at least five percentage points above the London Interbank Offered Rate.
The hedge fund selected must also have zero or near-zero correlation with equities – as measured by the S&P500 Index – or bonds, as represented by the Lehman Aggregate Index.
Meanwhile, the Royal Mail Pension Plan will look at hedge funds as part of an investment review once an actuarial valuation has been completed. A decision is expected by April 6.
Mercer Investment Consulting head of investment strategy Andy Green said schemes were increasingly turning to hedge funds in a bid to cut risk and improve returns.
He said: “We’ve moved into the next phase, and this will encourage the broader acceptance of hedge funds. Hedge fund investment is about diversifying away from an over reliance on a single source of returns, which for schemes, is the equity market.”
And Watson Wyatt senior investment consultant Jane Welsh said that while there had been increased interest in hedge funds, most of the interest would continue to come from the larger schemes.
Welsh said: “We think that the fund-of-hedge funds approach makes sense for most investors. We talk to all of our clients about new ideas and investment strategies, but we’ve found that the appetite has been from the larger schemes.”
In this week's Pensions Buzz we want to know what you think of the government's proposals set out in the DB white paper, which include new powers for the regulator.
The pensions watchdog has been through some testing times and is making significant changes to the way it regulates. Speaking to Stephanie Baxter, Mark Boyle takes stock and looks to the future
Enhanced powers for The Pensions Regulator (TPR) to prosecute and fine company directors who "wilfully or recklessly" put their defined benefit (DB) pension scheme at risk will be hard to enforce, commentators say.
Melrose has pledged to contribute up to £1bn to GKN's pension schemes as part of a final offer to acquire the engineering business.