UK - The £1.3bn Environment Agency pension fund has tendered a £400m active currency overlay management mandate and a £50m active emerging markets equity mandate.
Howard Pearce, head of environmental finance and pension fund management, said the new mandates were the tail end of a review and re-structure which saw eight new managers appointed to the fund in 2005. There would be no further review this year, he added.
The currency overlay mandate will be managed as a double-edged strategy, with a focus on both risk avoidance and achieving alpha from the fund’s currency exposure. Sixty percent of the exposure should be passively hedged and the balance actively managed.
The performance target is to generate an excess return of 1.5% pa on the actively-managed portion. Tracking error should be targeted to be in the range of 2 to 4% pa.
“We restructured our fund last year and have now increased our risk to overseas currency, so and we wanted to manage down some of the risk,” said Pearce.
The emerging markets mandate has a performance target of 3% pa on a rolling three year basis. It is being pursued because the fund is slightly underweight in emerging markets, said Pearce, who added that the allocation of £50m had been generated through strong cash flow, primarily from flow this year.
The appointed manager will be expected to manage the assets in accordance with Local Government Pension Scheme regulations and the Agency's statement of investment principles, environmental overlay strategy, and corporate governance strategies.
The fund said it was important that the manager could demonstrate the ability to assess the financial risks and opportunities that can arise from economic, social or environmental issues, and to manage these within the portfolio to produce superior investment returns.
They must also demonstrate corporate research, engagement and governance capability, including awareness of environmental issues, and/or the ability to work with third parties on corporate research, engagement and governance.
Deadline for responses is 24 February 2006.
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