Newham profits from Brexit dollar deal
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Photo: Antonin, Flickr.
Newham Pension Fund pulled off a currency hedge to ride out the post-Brexit slump in sterling, saving £20m in the process.
The council, which was last week named as the second top performing fund in the Local Government Pension Scheme during 2015-16, converted £150m in cash into dollars shortly before the EU referendum.
The move meant the cash was protected from a 13% fall in value if it had remained held in sterling.
Stephen Wild, corporate finance manager at London Borough of Newham, told Room151: “Our members took quite a lot of interest in Brexit referendum and they didn’t want to sleepwalk into a problem.
“Following discussions with our advisers we converted substantial pile of sterling into US dollars. When Brexit vote came out for Brexit we made a 13% gain.
“This performance, if our success in other areas continues, could help us to reduce pressure on the rate of increased pension contributions from scheme members.”
Earlier in 2016, Newham cashed in £150m of passive equities – an equivalent amount to the profit it had made on its unconstrained global equity active, run by manager Longview.
Erik Britton is director of Fathom Consulting, which advised the council on the transaction. He told Room151: “We had been alerting the council, and other clients with a large amount of cash in sterling, to the risks that might flow from the referendum.
“Some funds, ahead of the referendum, were saying that they couldn’t judge which way the vote would go, so took no action.
“However, we believe that sterling – due to the UK’s large current account deficit – is overvalued, so any rally from an ‘in’ vote wouldn’t be sustained. To us, it was a one-way bet.”
Wild said that the council is currently planning to hold onto the cash in US dollars.
He said: “Fathom is saying sterling could fall significantly further and we are monitoring the situation closely.
“We had been poised to put more investment into commercial property but after the Brexit vote it seems we made quite a good call not to do that.”
Chris Buss, director of finance at London Borough of Wandsworth said that his pension fund did not carry out hedging strategies but expressed happiness with post-Brexit vote performance.
He said: “Around 40% of our investments are in overseas equities – they more than offset the loss on the FTSE. Now that index has gone up as well, we are doing very well.”
Photo (cropped): Antonin, Flickr.
