UK - Britannic Asset Management is changing the benchmark of its fixed interest pension fund to better reflect the increasing emphasis being placed on the role of fixed income and the management of investment risk.
Britannic manages more than £6bn in fixed interest funds and has been a specialist manager in this field for decades. Its specialist pooled fixed interest pension fund, launched in 1994, has produced top-quartile performance over the last five years. From April 1, 2002, however, its benchmark is going to change to a composite of two widely recognised market indices - the FTSE UK Government All Stocks Index which will make up 60% of the new benchmark, and the Merrill Lynch Non Government All Maturities which will make up 40% of the new benchmark. These represent the main asset classes in which the fund invests.
David Harris, head of pooled funds, said: Since its inception, the CAPS benchmark we have used has come to represent an increasingly diverse range of funds under the title ‘Standard Funds’.
“Some invest solely in UK government bonds, some in purely corporate bonds and others, like ours, invest in a broad mix of both asset types. The precise asset breakdown of the funds within this benchmark is not readily available, which presents a number of potential issues when it comes to managing risk and demonstrating the value added.
“It’s important to address this issue, particularly in light of the Myners Review which has highlighted the importance of customisation and transparency in pension fund benchmarking.
“At the same time it provides greater transparency in managing risk relative to the benchmark while adding value for our pension fund clients. In the year ahead, we will be reviewing the benchmarks of our other specialist funds to see if a change is necessary.
The current allocation of the Britannic Fixed Interest Pension Fund is approximately 68% gilts and 32% corporate bonds, which fits comfortably within the new benchmark structure. To provide scope and flexibility to add value through asset allocation changes in the future, however, a tolerance range of +/-20% has been set around each index component. This will allow the fund to invest a greater proportion in either corporate bonds or gilts should the right market conditions be present.
Britannic also manages £400m of segregated fixed interest mandates.
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