LGT wins £280m mandate from UK pension fund

The mandate is another example of institutional investors opting for a separate account that invests across asset classes.

Hertfordshire County Council, a UK local authority pension fund, has allocated £280 million (€333 million, $444 million) to LGT Capital Partners.

The separately managed account, which focuses on alternative asset classes including private equity, hedge funds, commodities, insurance-linked securities and property, is one of the largest mandates focused exclusively on alternative investments ever awarded by a UK local authority pension fund, according to an LGT statement.

The mandate will provide the pension fund with an “actively managed portfolio of nine alternative asset classes”, Roberto Paganoni, chief executive of LGT, said in the statement. Hertfordshire County Council will also have access to “best-in-class external managers and the convenience of a single reporting solution for their alternative investments”, he added.

As of March 2011, Hertfordshire County Pension Fund had £2.42 billion of assets under management, with 4.9 percent invested in private equity, according to PEI’s in-house database PE Connect. Hertfordshire County Council declined to comment.

For some investors one combined account with access to all these strategies has a lot of benefits

Thomas Weber

LGT developed a multi-alternatives offering in 2011, as the Swiss funds of fund manager and advisor “recognised the difficulties some pension funds, such as UK local authorities, face in accessing alternative investments”, it said in the statement.

“If you are an institutional investor and you would like to access all these types of asset classes you will have to deal with many different specialists: in hedge funds, in private equity, in insurance-linked securities, emerging market debt for instance – so that requires a lot of resources and coordination. For some investors one combined account with access to all these strategies has a lot of benefits,” Thomas Weber, a managing partner at LGT, told Private Equity International.

These types of customised structures, which typically come with more advantageous economics for investors, are however only accessible to investors that can allocate a certain amount, he acknowledged, declining to comment on the minimum capital commitment needed.

Earlier this month, Jon Moulton’s Better Capital joined forces with the National Pensions Reserve Fund of Ireland (NPRF) to invest in Irish turnaround businesses. “NPRF very much wants to have a focused activity,” Moulton told Private Equity International at the time, calling joint ventures with limited partners “a steadily increasing trend”. Moulton and NPRF have earmarked €100 million to invest in Irish businesses. The joint venture is likely to make investments between €10 million and €50 million.

A number of such arrangements have been agreed by US pensions recently. Last year, the California Public Employees’ Retirement System (CalPERS) awarded a $500 million separate account to The Blackstone Group. In 2011, New Jersey’s state pension struck a $1.5 billion arrangement with Blackstone. And the Teachers’ Retirement System of Texas also formed accounts in 2011 with Kohlberg Kravis Roberts and Apollo Global Management, committing $3 billion to each firm.

According to Coller Capital’s Global Private Equity Barometer Summer 2012, a twice-yearly study on the plans and opinions of institutional investors in private equity, special accounts are more common among large investors. Almost a quarter of investors with total assets under management of more than $20 billion have separate accounts with GPs, the study found. In the overall private equity sector, only one in eight uses customised accounts within their private equity programmes.