City of London, Others Look to Increased Oversight and Allocation Changes

(November 5, 2009) – The $2.3 billion City of London pension fund is facing increasing oversight and asset allocation alterations after a poor 2008 performance.

The City’s recent grumblings of change have been mirrored in public funds elsewhere—including many endowments and American public funds—that are rethinking asset allocation and levels of oversight following both poor returns (Harvard and private equity, MassPRIM and portable alpha) and scandal (New York State Common Fund, CalPERS).

To this end, the Square Mile’s defined benefit pension plan is looking to invest more in alternatives, but investment managers who handle the scheme’s funds have come under increased scrutiny as the fund’s trustees look to implement best practices and rebound from recent poor returns. According to Reuters, the scheme’s trustees simply set that asset allocation and let the seven asset managers go from there.

Currently, the allocation is about 80% in public equities, but managers have leeway in making investments and, in some cases, the ability to switch asset classes. This power often was given in the past due to the swiftness of markets and the relative slowness of many pension boards. Possible changes would revolve around increasing the strictness of oversight while, at the same time, broadening the scope of investments.

“At the moment, we give them (fund managers) quite a degree of discretion,” Paul Mathews, Corporate Treasurer at the City of London Corporation, told Reuters. Mathews and other trustees are wondering if this loose structure is appropriate following steep losses in recent years.