Aberdeen appointed for £50m alternatives mandate

London Borough of Barking and Dagenham Pension Fund has appointed Aberdeen Asset Management for a new £50m mandate covering alternative private equity investments.
The new investment is anticipated to be covered by £12m in cash and £38m which will come from the sale of equities and property investments.
The appointment comes a year after the fund voted to allocate resources to private equity, social housing and diversified growth funds.
Jonathan Bunt, chief finance officer at the council, told Room151: “The way that equities have moved up in the past two years compared to other investments meant we were overweight in them. “We needed to trim that and lock in the growth, as well as diversifying away from pure equity and bond investments.”
The fund will reduce its direct exposure to equity from 51% to 45% with property investment reduced from 9% to 7%
Aberdeen was appointed after 55 managers responded to a tender notice released in March, which said the fund was aiming for the provider to produce a return of Libor plus 4% to 5% a year on investments.
The council has also shortlisted two managers for a separate mandate aimed at investing in social and affordable housing across the UK.
This will seek to achieve returns of 2% to 3% above index linked gilt returns.
Bunt said: “We have done quite a lot of work within the borough on funding models for social housing so we know it is a good model with inflation linked returns thanks to government regulation of rent levels.”
However, he said that the fund would focus more widely – investing in schemes across the country, and would also consider private rental sector schemes.
A report considered by the council’s pension committee said that the pension fund overall had a funding level of just 71% in March 2013, but that this was mainly because of a very low discount rate used to value the fund’s liabilities.
The report said: “The discount rate used was 4.7% but had the fund used a discount rate of 5.4% or 6% it would have been 80% and 88% funded.”
It said that even using the original rate, improved market conditions mean the fund is approaching 80% funded.
The fund’s strategic objective is to be fully funded by 2033.

Photo (cropped): CONTRACT by Steve Snodgrass is licensed under CC BY 2.0