UK - The London Pension Fund Authority (LPFA) has appointed Merrill Lynch Investment Managers (MLIM) to run a £185m mandate according to the liability driven investment approach.
The mandate will be run with a target of RPI+5% (Retail Price Index).
Ewen Cameron Watt, head of investment strategy and research at MLIM, said by using active asset allocation and a broader than usual set of asset classes, target return portfolios were managed to generate a steady stream of returns taking into account both the current economic environment as well as a scheme’s position in relation to its future liabilities.
“Target return is not constrained by a benchmark. It will use dynamic asset allocation and a broad range of investment instruments including equities, bonds and derivatives to seek the highest probability of achieving the target whilst actively taking steps to avoid short term losses,” he said.
Andrew Dyson (pictured), head of MLIM’s institutional business, said 2005 was a “breakout year” for pension funds looking to use multi-asset approaches to tie in more closely to their liability based investment strategies.
“At MLIM we are seeing clients choose between target return strategies that can be used as either a component part or total solution to their liability based investment strategy. This is in direct response to liability driven investing becoming main stream,” he said. “However, with many pension schemes under-funded the practicalities of switching straight into bonds is too costly, meaning that pension schemes looking for ways to diversify out of equities are considering the benefits of diversification via the multi asset route”.
The LPFA is an administering authority of the Local Government Pension Scheme. It was established in 1989 as a stand-alone public body to oversee the former Greater London Council (GLC) pension fund following GLC abolition on 31st March 1986.
It is also responsible for the residual employer functions of the GLC, the Inner London Education Authority, and the former London Residuary Body .
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