16/05/2005 - Following
a comprehensive review, the Environment Agency
today announced the implementation of a revised
investment strategy, and the appointment of
six new specialist investment management companies
to manage almost £1 billion of the Environment
Agency’s Active Pension Fund.
The Environment Agency's revised asset allocation
strategy entails a move from 'balanced' to
specialist fund managers. The move follows
a period of disappointing investment returns,
and was based on the advice of Watson Wyatt
investment consultants, and research by the
Environment Agency’s own environmental finance
and pension fund management team.
Under the new investment strategy, the Agency
is reducing its allocation to UK equities
(to reduce risk resulting from the concentration
of the UK market in a relatively few very
large companies), gilts, and cash. Allocations
to global equities and corporate bonds are
being increased, and new allocations made
to property and private equity, to increase
returns and spread investment risk in line
with best practice. The Agency is also making
an increased allocation of 7% to a good practice
environmental mandate.
Six new fund managers have been appointed,
following EU competitive tendering and rigorous
evaluation and selection process which has
taken place over the last six months. The
new fund managers are Hermes Pensions Management,
Standard Life Investments, European Credit
Management, Capital International, State Street
Advisors and Sarasin Chiswell.
The Agency’s previous “balanced” managers
were Legal & General, Henderson and Merrill
Lynch.
The Environment Agency was advised in the
implementation of its revised investment strategy
and new manager structure by a range of professional
advisors. Mercer Investment Consulting provided
general investment advice. Rathbone Greenbank
provided specialist advice on sustainable
responsible investment. B-Finance assisted
with the search and selection of managers.
Morgan Stanley carried out the transition
management, and Inalytics assessed their performance.
The Agency's legal advisors are Osborne Clarke
and its consulting actuaries are Hyman Robertson.
The new managers have been awarded three-year
investment agreements, which are extendable
subject to satisfactory performance. Each
“active” style manager has been set specific
investment out-performance targets, and performance-related
fees will only be payable if they are met.
In addition, in accordance with the Active
Fund’s environmental overlay strategy, each
manager’s performance will also be assessed,
where appropriate, on their integration of
environmental considerations into risk management,
stock selection, company engagement, shareholder
activism and proxy voting. Relative performance
will also be monitored using corporate governance
and socially responsible investment indices
and environmental reporting tools.
Each new manager’s performance will be evaluated
in relation to the Environment Agency’s financial
targets and its other investment requirements.
Under the LGPS investment regulations, the
Agency can terminate the contracts if performance
is below that needed.
Commenting today, Howard Pearce, Environment
Agency Head of Environmental Finance and Pension
Fund Management, said :
“After evaluating tenders from nearly 100
investment companies, we are delighted to
have appointed six investment companies whom
we, and our advisors, believe possess the
necessary quality of staff, investment processes
and track record to deliver our financial
performance targets, environmental and SRI
requirements.”
The Agency is currently selecting two further
specialist investment managers (one for property
and one for private equity to manage two £50m
mandates). Details of these appointments,
which will complete the new line-up of eight
specialist managers, are expected to be announced
in July/August 2005.
