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Investment Managers
We currently employ 9 mainstream fund managers i.e. excluding alterative asset management. These fund managers have been chosen, not only because of their high quality people, processes and historic performance, but also for their diversity of styles. This diversification contributes to risk control within the portfolio. Each fund manager is set a benchmark and performance objective around that benchmark, these are listed below.
Benchmarks - as at 31/03/2008
Equities
Legal & General - With effect from December 2007, the old benchmark for Legal & General has been suspended during the gradual transition to a new benchmark. This is now complete and the benchmark for Legal & General investment is FTSE World Total Return Index.
Newton - Performance target: MSCI World Total Return Index + 2% per annum (net of fees)
MFS - Performance target: MSCI World Total Return Index + 2% per annum (net of fees)
Target Return
Blackrock - Performance Target: Retail Price Index +5% per annum (net of fees)
Currency
Record Hedging - Performance Target: To hedge 50% of the overseas exposure back into sterling.
Record Active - Performance Target: To exceed the value created by the overseas hedge by 1.5% per annum.
Cash Flow Matching
BGI - Performance Target: To exceed the change in liability cash flow valuation by +0.8%.
ECM - Performance Target: To exceed the change in liability cash flow valuation by +1.75%.
Insight - Performance Target: To exceed the change in liability cash flow valuation by +1.25% per annum
* The mandate for UBS was terminated in October 2008.
Changes to Investment Strategy and Benchmarks Investment Strategy
During the February Investment Committee meeting, the governance arrangements to manage the strategy in order to differentiate between decisions required by the Board, and delegations to the Investment Committee and the Investment Director was discussed and agreed.
The general principle of the agreement is that the Board set the overall asset allocation strategy between global equities (including private equity), target return and diversifying assets. The Investment Committee is delegated to determine tolerance ranges for sub-asset classes and implement the asset allocation strategy within those ranges. The Investment Director, in consultation with the Chairman and Chief Executive, is delegated to carry out the tactical implementation of the strategy, including the appointment of managers or purchase of units in funds for mandates up to £50 million (broadly 2% of the active sub fund). Appointments for mandates in excess of £50 million require the approval of the Investment Committee.
The implications of this are set out below.
Overall asset allocation strategy
| Asset Class | Minimum (%) | Range (%) | Maximum (%) |
|---|---|---|---|
| Global Equities (including private equity) | 50 | 60 | 70 |
| Target Return | 15 | 20 | 25 |
| Alternative Assets | 15 | 20 | 25 |
| Total | 100 |
Benchmark
MFS – with effect from 1 May 2008 the benchmark has been changed to MSCI All Country World Index.
Newton – With effect from 1 May 2008, the benchmark has been changed to MSCI All Country World Index.
Short Term Performance
In December 2007 the investment mandate with Goldman Sachs was terminated. Assets were transferred to L&G and are being managed passively. The mandates for the remaining managers have been operative from 1 January 2006. Performance data is presented as at 31 March 2008.
| Pensioner Sub-Fund | ||
|---|---|---|
| Manager | 1 Year |
2 Years |
| LGIM | -5.1 |
1.0 |
| Benchmark | -5.0 |
1.1 |
| Relative Performance | -0.1 |
-0.1 |
| ECM | -11.3 |
-6.3 |
| Benchmark | 7.1 |
2.2 |
| Relative Performance | -17.2 |
-8.4 |
| BGI | 11.7 |
6.7 |
| Benchmark | 12.6 |
8.0 |
| Relative Performance | -0.8 |
-1.4 |
| INSIGHT | 10.2 |
6.4 |
| Benchmark | 12.5 |
6.9 |
| Relative Performance | -2.0 |
-0.5 |
| Active Sub-Fund | ||
| Manager | 1 Year |
2 Years |
| LGIM | n/a* |
n/a* |
| NEWTON | 6.6 |
1.6 |
| Benchmark | -4.5 |
-1.3 |
| Relative Performance | 11.7 |
2.9 |
| MFS | 1.3 |
3.1 |
| Benchmark | -4.5 |
-1.3 |
| Relative Performance | 6.1 |
4.4 |
| Blackrock | 3.9 |
4.4 |
| Benchmark | 8.9 |
9.4 |
| Relative Performance | -4.6 |
-4.5 |
| UBS*** | -0.6 |
1.9 |
| Benchmark | 8.9 |
9.4 |
| Relative Performance | -8.7 |
-6.8 |
| RCM Hedging | -1.7** |
1.3** |
| RCM Active | n/a** |
n/a** |
| ALTERNATIVE ASSETS | 3.4 |
8.3 |
| Benchmark | 8.9 |
9.4 |
| Relative Performance | -5.0 |
-0.9 |
| ASF CASH FUND | 7.5 |
6.4 |
| Benchmark | 5.9 |
5.5 |
| Relative Performance | 1.5 |
0.8 |
Notes:
* The 1 year performance figure is not available as the bulk of L&G investment was transferred from Goldman Sachs in December 2007.** RCM Currency was split into Hedging and Active in Dec 2007, the performance shown under Hedging included the pre-split period.*** The mandate for UBS was terminated in October 2008.