London pension plan adds new hedge funds ahead of review

The London Pensions Fund Authority has added two new hedge funds to its portfolio and taken its first steps into the catastrophe reinsurance market, as it gears up for a major investment review later this year.

The investor allocated £51m across two funds run by Bermuda-based Aeolus Capital Management, a $3bn insurance securities firm owned by Paul Singer’s hedge fund firm Elliott Management, in the last financial year, according to new figures.

The allocation represents the LPFA’s first move into the catastrophe reinsurance market — still a comparatively rare investment for UK pension funds, despite increasing interest in recent years.

During the 12 months to March 31, the LPFA also allocated £41m to a macro hedge fund run by Graham Capital Management and a further £46m to the GSA Trend Fund, a trend-following hedge fund run by Mayfair firm GSA Capital Partners.

The Graham Global Investment Fund was down 9.4% last year and is down 2.9% this year to July 25. Meanwhile, the GSA Trend Fund ended 2016 down 2.3% and returns have dropped 10.6% this year to July 21, according to industry performance figures circulated by HSBC.

Neither Graham Capital nor GSA Capital could be reached for comment in time for publication.

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The LPFA manages £5.3bn of retirement savings for local government workers in the UK capital.

Chris Rule, its chief investment officer, said the fund was in the process of reviewing its asset allocations, with any changes to be implemented before the end of the current financial year. It is conducting the “triennial” review of its investments alongside the Lancashire County Pension Fund ahead of the two funds formalising their partnership next spring.

The two funds agreed to pool their assets in 2015, as part of wider efforts among UK council funds to consolidate their investments. Combined, the London and Lancashire funds will manage £10bn when the partnership goes live in 2018.

LPFA now invests in six “total return” funds; the classification it gives to fund managers aiming to make money irrespective of market conditions. Its largest allocations are £264m in a high-octane bond fund from Insight Investment; £227m in BlackRock’s Fixed Income Global Alpha strategy, and £127m in the Winton Evolution Fund, a computer-traded fund run by hedge fund manager David Harding.

The funds from Aeolus, GTA and Graham have been added to this roster.

Other changes to LPFA’s portfolio in the last financial year included a significant increase in its cash exposure, with the fund holding £369m in cash at March 31, 2017, up from £114m six months before. Rule said the increased cash position was the result of an inflation hedging position and of moving investments.

LPFA’s property holdings also increased, with Knight Frank drawing a further £40m from the pension fund as part of its existing mandate to purchase direct property in the UK. The fund now has £312m of property investments, £112m of which is with Knight Frank and just under £200m is invested with CBRE.

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