Mandates at risk in London borough restructure
UK - Active managers' poor performance has led the London Borough of Hillingdon to dramatically restructure its pension fund portfolio in favour of a passive approach.
The shake up, which could see up to 50% of the fund's assets moved, would slash mandates previously awarded to Alliance Bernstein, UBS, Goldman Sachs and Capital International.
James Lake, investments manager, London Borough of Hillingdon Pensions Committee, told Global Pensions: "The performance of our active managers has not been as good as expected, even taking the credit crunch into account.
"We have decided on a restructure to take a more risk adverse approach and get some benchmark returns."
All four managers' equity or bond funds, which together make up 89.5% of the portfolio, missed their benchmark by over 1% and ran negative returns in the first quarter of 2008.
As a result the fund value fell almost 10% to £526.2m (US$1bn).
Deborah Fuhr, former executive director of investment strategies at Morgan Stanley, who left last week after her team dedicated to benchmark investing was disbanded, agreed a passive approach had become increasingly attractive to pension funds.
Fuhr said: "Most active managers do not consistently beat the benchmark and that is the real challenge.
"You have to pay more money for someone to do it and it is very difficult to find managers who consistently can. That is why passive investment has become more popular," she added.
Lake confirmed the fund was not looking to change the geographic allocation of assets and hoped to have the new line up in place by the end of 2008.
The active managers affected by the reshuffle have been informed by the fund and declined to comment when approached by Global Pensions.
In April, the London Borough of Richmond upon Thames pension fund shifted 50% of its portfolio to passive management citing active managers' higher fees for relatively low returns.
James Lake, investments manager, London Borough of Hillingdon Pensions Committee, told Global Pensions: "The performance of our active managers has not been as good as expected, even taking the credit crunch into account.
"We have decided on a restructure to take a more risk adverse approach and get some benchmark returns."
All four managers' equity or bond funds, which together make up 89.5% of the portfolio, missed their benchmark by over 1% and ran negative returns in the first quarter of 2008.
As a result the fund value fell almost 10% to £526.2m (US$1bn).
Deborah Fuhr, former executive director of investment strategies at Morgan Stanley, who left last week after her team dedicated to benchmark investing was disbanded, agreed a passive approach had become increasingly attractive to pension funds.
Fuhr said: "Most active managers do not consistently beat the benchmark and that is the real challenge.
"You have to pay more money for someone to do it and it is very difficult to find managers who consistently can. That is why passive investment has become more popular," she added.
Lake confirmed the fund was not looking to change the geographic allocation of assets and hoped to have the new line up in place by the end of 2008.
The active managers affected by the reshuffle have been informed by the fund and declined to comment when approached by Global Pensions.
In April, the London Borough of Richmond upon Thames pension fund shifted 50% of its portfolio to passive management citing active managers' higher fees for relatively low returns.
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