The £6.4 billion West Midland Metropolitan Authorities Pension Fund has tendered currency alpha and currency overlay briefs. The scheme has approximately GBP2 billion in international equity which will undergo an active overlay handled by one or possibly more managers. The overlay will have a hedging of 55-75%, said CIO Judy Saunders, and is “part of the fund’s approach to risk management.”
Saunders described the active currency alpha mandate as a “toe in the water,” explaining that the tender was in order to test the market. The mandate may or may not go ahead, depending on the responses the fund receives. The scheme has a positive cash flow so the currency alpha mandate, which is estimated at approximately GBP60 million, will be funded through new cash rather than by shifting existing assets.
The deadline for both tenders is Aug. 29, with appointments for either of the mandates expected by year-end. bfinance is advising on the appointments.
Additionally, the scheme is considering other alternatives for diversification with a 2-3% allocation, including the potential currency alpha mandate. Other alternatives include infrastructure, emerging market debt, commodities and global tactical asset allocation, Saunders noted. It expects alternatives to generate a combination of beta and alpha, she explained.
The scheme already has a 5% allocation to private equity and invests 8% in real estate, so an alternatives expansion would not include these. Moreover, hedge funds have also been ruled out by the scheme’s trustees for several reasons, including lack of transparency.