21/04/2010 Author: Kapila Gohel

Royal Borough holds back on hedge funds

The Royal Borough of Kensington and Chelsea in London is taking a conservative approach to investing in hedge funds despite growing interest in the alternative asset class shown by its London pension fund peers.

The £428m ($661m) pension considered introducing a 20% absolute return allocation and outsourcing its tactical asset allocation decisions as part of a strategic review. However, the investment committee expressed, “wariness at an approach which involved fund managers adopting ‘clever’ or complicated investment mechanisms”. Instead the pension has continued with its current strategy for the time being, according to recent meeting minutes.

At the same time other pension funds in the London area continue with plans to move forward into hedge funds. Last November, HFMWeek exclusively reported that both the London Borough of Lambeth’s £700m ($1.17bn) pension and the £300m ($463.8m) London Borough of Havering pension fund triggered searches for investment managers including hedge funds. While Havering is currently in the process of shortlisting managers for selection, Lambeth has made new hires to its portfolio.

Another Midlands-based UK pension, the £1.1bn ($1.7bn) Lincolnshire County Council Pension Fund, has also started a search for a firm to manage a diversified portfolio of alternative investments, a move which could result in the scheme’s first foray into hedge funds.

The Royal Borough of Kensington and Chelsea’s review looked at new approaches to strategic asset allocation which would allow the fund to implement “a more flexible asset allocation strategy to take advantage of specific opportunities that occur from time to time in different investment markets,” according to a report prepared by the pension’s investment consultant, Hymans Robertson.

The pension’s investment committee has chosen to stick to its equity-heavy asset allocations. It currently allocates 70% to equities, 20% bonds and 5% each to private equity and property.