Top UK pension fund may invest up to 20 pct in alternatives

The UK's largest pension scheme, the BT Pension Scheme (BTPS) could invest up to 20 percent of its assets in alternative asset classes including hedge funds, a senior executive in charge of its investments said recently.

Frank Naylor, head of investments at Hermes Pensions Management, told Reuters the pension fund had also reallocated $1.2 billion to two new fund of hedge funds (FoFs) launched by its hedge fund boutique Hermes BPK. Hermes Pensions Management is responsible for BTPS's investments and is part of Hermes, the UK fund manager fully owned by BTPS, which has assets of about 36 billion pounds ($53.46 billion). "We have a rolling programme to allocate away from equities and into index-linked gilts and other return seeking assets such as absolute returns," Naylor told Reuters.

"Allocation to alternatives could rise to 15-20 percent over a three-year period."
An absolute returns strategy – which aims to generate positive returns regardless of market conditions – includes investments to commodities, private equity, hedge funds and infrastructure.

Naylor declined to provide exact details on the scheme's current allocation to absolute returns and also declined to give details on the increased level of allocations to specific asset classes. In December 2007, the pension fund had allocated 13 percent to alternative assets. Allocation to equities has declined to 30 percent, from 50 percent eighteen months ago.

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