The Penny King's Free and Clear M&A Fund

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U.K. Council To Tender All Assets
--Emma Blackwell

January 11, 2004

The GBP245 million London Borough of Havering Pension Fund will put all its assets out to tender and plans to make a first foray into high-yield bonds. Merrill Lynch Investment Managers manages all the fund's assets in a balanced portfolio. The decision to retender all assets is part of a review to develop an investment strategy based on the fund's liability profile and in line with the Myners Report 's 10 principles, said an official close to the fund.

Officials at the council declined to comment and referred calls to the fund's consultant, Val Burdett-Callen , principal at PSolve Asset Solutions , who said MLIM will be invited to retender. The official close to the fund observed that over the long term, MLIM has performed well, but performance dipped this year. Andrew Dyson , head of institutional business at MLIM in London, declined to comment.

The official close to the scheme said it is likely to issue specialist mandates, but could award more than one mandate to a single firm because the council does not want to incur the administrative and compliance burden of hiring too many managers.

The fund will make a first foray of approximately 10% of assets into high-yield bonds, funded out of equity, to diversify risk and to achieve the level of returns necessary to reduce the fund's deficit, the official continued. It was 84% funded at the last valuation in 2001. The scheme has a gilt benchmark to match liabilities and aims to achieve returns in line with this benchmark plus approximately 4%. The scheme also invests 5% of assets in property unit trusts, which was not previously included in the strategic asset allocation but will be included now and will be increased to 5-10%. The fund invests 30% of assets in fixed income and the remaining 55% in equity.