UK - The £1.9bn Leicestershire County Council Pension Fund, run by the county council, is seeking a manager for a £100m targeted or absolute return mandate.
The fund currently has 1.5% allocated to cash, and Colin Pratt, investment manager of the pension fund, said the decision had been taken a year ago that trustees "no longer wanted that 1.5% cash to be in the strategic benchmark".
Pratt said trustees had then decided that targeted returns "had some merit", but realised that 1.5% (£30m) was "neither here nor there" in investment terms. The decision was made to increase the mandate to £100m (5% of the total fund), although as yet it has not been decided which asset the remaining 3.5% will be taken from.
Speaking about the philosophy behind the choice of a targeted return mandate, Pratt said that they were looking at it as a "diversification tool rather than anything else".
He stated: "We won't be asking for a targeted return that will be above our expectation of the long-term return for equities. We believe a slightly lower return can be achieved in the long-term, but it can be achieved in a much less volatile manner than we would achieve through increasing our investment in equities."
Officially, the pension fund is tendering for a targeted return or absolute return mandate. However, Pratt said the fund would "favour a targeted return rather than a hedge fund mandate".
He added: "We know targeted return is a relatively new product for many managers who are out there in the market, there's not a huge track record and if we don't get sufficient quality response from people with tested track records just looking at targeted return, then I think we'll switch and have to include some absolute return - or hedge fund - type vehicles."
The fund's current asset allocation stands at: 70% invested in equities, 10% in property, 18.5% in bonds and 1.5% cash.
PTL has appointed Karein Davie as a client director in its Birmingham office.
The level of interest rate hedging increased to £29.5bn of liabilities in the second quarter as pension funds continued to de-risk, according to BMO Global Asset Management's research.
UK inflation has risen for the first time since November to 2.5% in July, up from 2.4% in June, thanks to rising fuel costs and the price of computer games.
The number of DB pension scheme trustees targeting a buyout with an insurer has increased significantly in the past five years, latest research from Willis Towers Watson shows.