UK - The £900m Somerset County Council pension fund is seeking a currency manager to help hedge its currency exposure, and to undertake an active currency overlay to generate alpha.
Investment manager Anton Sweet confirmed that approximately 45% of the fund’s assets were denominated in non-GBP currencies. The bulk of this allocation would be looked after by the appointed manager.
“There will be a hedging element and an active overlay element,” he said.
Changes to the pension fund’s asset allocation in 2004 led to a relatively high exposure to non-sterling denominated currencies, he added.
“We wanted to manage the risk which that entails a bit better than we were. Our research showed currency managers have the ability to add some value and we thought we would like to give that a try.”
Risk parameters will be discussed with prospective managers as part of the tender process.
“We haven’t bedded down the extent of alpha we expect the program to generate,” said Sweet.
The mandate is likely to be unfunded, which means the appointed manager would typically buy currency forwards to effect the exposure which he or she think the pension fund will need.
The pension fund will then settle these arrangements as the forwards mature, meaning monies invested elsewhere by the pension fund will not have to be redirected away from existing managers.
The deadline for tenders is 13 February 2006.
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