Clwyd Pension Fund has undergone a restructure of its hedge fund strategy which will generate cost efficiencies and protect against volatility, following a major investment review.
The £1.4bn local government fund has moved its 13% hedge fund allocation from four previous managers into a managed account platform run by Man FRM, through which Clwyd will allocate 9% of its assets.
The strategy will include exposure to managed futures for the first time, with just 3% exposure to hedge funds and 6% to managed futures, according to the fund's 2015 annual report. It said that investing in managed futures will protect against market volatility, particularly on the downside. Managed futures are an alternative investment strategy aimed at giving portfolio diversification among various types of investment styles and asset classes to help mitigate risk.
Clwyd's revamped portfolio replaces previous allocations to Liongate, SSARIS, BlueCrest, and Duet which have run various hedge fund strategies for the scheme.
Clwyd is the second fund to join Man FRM's platform which is specifically designed for the LGPS after Cornwall Pension Fund was the first to sign up in January, increasing its hedge fund allocation from 1% to 8%.
These changes came on the back of a fundamental investment strategy review by the Clwyd's investment consultant JLT Employee Benefits, which discovered opportunities to reduce risk without sacrificing returns.
Clwyd pension fund manager said in a statement: "We look forward to working closely with Man FRM to build a diversified hedge fund portfolio that will provide the best solution for the Clwyd Pension Fund as part of the overall investment strategy. Man FRM's managed account solution provides our fund with ownership of the hedge fund investments, but also allows for high levels of transparency of the underlying holdings, a factor which is not always available through the traditional fund of funds offering. In addition, Man FRM's tailored solution for LGPS funds provides a material collaboration opportunity for all LGPS funds looking to invest in hedge funds."
Managed account platforms also give opportunities for cost efficiencies by collaborating with other schemes. Man FRM said its solution provides a sliding management fee that scales down based on the size of the collective assets managed.
JLT Employee Benefits director Kieran Harkin said the collaboration between Clwyd and Cornwall is an example of what can be achieved by LGPS funds working together in a proactive way.
Man Group president Luke Ellis said it recognises the pressures that LGPS funds are under to achieve cost reductions. "Our tailored solution for LGPS Funds treats these funds as a single investor with regards to pricing, but as quite different investors with regards to the eventual solution provided," he said.
Clwyd had "disappointing" returns from its previous hedge fund managers, amid "mixed returns" from the scheme's alpha seeking assets, according to its annual report.
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