UK council pension fund considering alternative investments including insurance-linked securities

by Artemis on April 4, 2012

It is testament to the growing profile of insurance-linked securities and catastrophe bonds as an alternative investment opportunity with attractive non-correlated returns when you hear of more mainstream investors looking seriously at an allocation to the space. It’s not that unusual for pension funds to be interested, in fact they are fast becoming one of the larger suppliers of capital to the ILS space, but it is encouraging when the pension fund in question is the UK’s Hertfordshire County Council pension fund.

Local authorities in the UK aren’t known for taking the lead on issues such as where pension fund assets are invested. However the county councils all run fairly large pension schemes for their employees and it now looks like insurance-linked securities have become an asset of interest to at least one of them.

Investment & Pensions Europe (IPE) reports that Hertfordshire County Council has released a tender requesting that investment managers apply to run a 10 year, £200m to £300m alternatives portfolio for their pension fund. The Hertfordshire council fund is about £2.4 billion in size according to IPE, so the alternatives allocation represents as much as 12.5% of their total fund value which is a decent sized allocation to alternatives. The local authority is looking to gain exposure to a wide range of alternatives through this strategy and have specifically named infrastructure projects, private equity, property, timberland, agriculture and insurance-linked securities as assets that will be considered.

The council is looking for a one-stop-shop investment manager to look after this alternatives allocation for them, so it’s unlikely to be worth ILS fund managers contacting them directly. It’s encouraging to think that some of this fund will end up in the ILS and catastrophe bond space though as there are well over 100 county, district and unitary level authorities in the UK with some type of pension scheme in place and that’s a lot of potential capital a portion of which could enter our market.

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