Key Takeaways
- • Strathclyde Pension Fund, the £9.4bn (€10.53bn) local government pension fund for west of Scotland, has deliberately stayed out of hedge funds, with head of pensions Richard McIndoe saying hedge funds would only be used "as a means to an end."
- • The fund moved into emerging markets in 1995, has one emerging-markets-specific mandate with Genesis Investment Management, and holds unconstrained global mandates with Capital International, Baillie Gifford, AllianceBernstein and Edinburgh Partners.
- • Strathclyde holds a 6.8% private equity allocation and is tendering two property mandates after a 2006 decision to raise its property target from 8% to 12%, which was never implemented.
- • The 2007 shift to global unconstrained mandates has underperformed since the financial crisis, though McIndoe says the mandates are rolling five-year commitments and the fund has resisted tinkering.
- • The latest strategy review increased unconstrained mandates and raised the passive core from 25% to 35%, which Funds Europe reads as a vote of no confidence in traditional active management.
Summary
Richard McIndoe, head of pensions at the £9.4bn (€10.53bn) Strathclyde Pension Fund, oversees the scheme for local government employees in the west of Scotland, which pays 75,000 pensioners and has 130,000 members. According to Funds Europe, the fund is governed by a committee made up entirely of Glasgow city councillors, which is advised by the internal team, an investment advisory panel and consultant Hymans Robertson, in place since the fund's inception 35 years ago and recently reappointed. McIndoe describes the committee as a balance of long-serving and newer members, and says investment managers largely explain their own decisions to it, since all investment decisions are made externally.
The fund has a reputation for adventurous investing. It entered emerging markets in 1995, well before peers, and made its first use of passive investment in 1998. Its emerging markets exposure is mainly through unconstrained global mandates managed by Capital International, Baillie Gifford, AllianceBernstein and Edinburgh Partners, alongside a single emerging-markets mandate with Genesis Investment Management. Strathclyde has no hedge fund allocation. McIndoe said he sees no need to hold hedge funds "for their own sake" and is unconvinced of their merits, though he did not rule out future use.
Property is a current focus. The fund has been a property investor since 1990 and agreed in 2006 to lift its target from 8% to 12%, but did not implement the change because the market was over-inflated. It is now running a broad tender covering segregated UK, indirect UK and global strands, narrowed to 18 candidates. A global mandate would be the fund's first property investment outside the UK. The fund also holds a 6.8% private equity allocation and an active currency exposure.
The 2007 decision to move a sizeable part of the portfolio into global unconstrained mandates, made to remove benchmark constraints on managers, has been difficult since the financial crisis. McIndoe said he was never uneasy with the strategy but that results are "not great" at this point. The mandates are rolling five-year commitments, now about three years in, and the fund has avoided changing them. The latest strategy review increased unconstrained exposure and raised the passive core from 25% to 35%, split between equities and bonds.
Looking ahead, McIndoe cited inflation and longevity risk as concerns, noting that life expectancy in Glasgow is well below the rest of Western Europe. He also pointed to uncertainty over the future of public sector pensions, saying "we don't know what the answer is, but we know that an answer is required."
The fund has a reputation for adventurous investing. It entered emerging markets in 1995, well before peers, and made its first use of passive investment in 1998. Its emerging markets exposure is mainly through unconstrained global mandates managed by Capital International, Baillie Gifford, AllianceBernstein and Edinburgh Partners, alongside a single emerging-markets mandate with Genesis Investment Management. Strathclyde has no hedge fund allocation. McIndoe said he sees no need to hold hedge funds "for their own sake" and is unconvinced of their merits, though he did not rule out future use.
Property is a current focus. The fund has been a property investor since 1990 and agreed in 2006 to lift its target from 8% to 12%, but did not implement the change because the market was over-inflated. It is now running a broad tender covering segregated UK, indirect UK and global strands, narrowed to 18 candidates. A global mandate would be the fund's first property investment outside the UK. The fund also holds a 6.8% private equity allocation and an active currency exposure.
The 2007 decision to move a sizeable part of the portfolio into global unconstrained mandates, made to remove benchmark constraints on managers, has been difficult since the financial crisis. McIndoe said he was never uneasy with the strategy but that results are "not great" at this point. The mandates are rolling five-year commitments, now about three years in, and the fund has avoided changing them. The latest strategy review increased unconstrained exposure and raised the passive core from 25% to 35%, split between equities and bonds.
Looking ahead, McIndoe cited inflation and longevity risk as concerns, noting that life expectancy in Glasgow is well below the rest of Western Europe. He also pointed to uncertainty over the future of public sector pensions, saying "we don't know what the answer is, but we know that an answer is required."
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.