When Man Group appointed Judy Saunders, the former Chief Investment Officer at the West Midlands Pension Fund (WMPF), as a senior advisor in July the aim was to sharpen its offering to UK local government pension fund investors. In selecting Saunders, the UK asset manager knew it was getting an innovative practitioner who had transformed the £8.7 billion fund.

Local government pensions
“Judy will work with the Man team to tailor products and strategy for the needs of UK local government pension schemes,” says Paul Dackombe, head of UK institutional sales at Man Group. “Her appointment shows our commitment to the UK institutional market and in particular local government pension schemes.”

Prior to retiring in May, Saunders had spent three decades with the WMPF, rising up the organisation, while spending 2001 as a senior investment consultant with Mercer. She was appointed to the CIO role in 2005 with full responsibility for long and short-term investment strategy, manager selection and risk budgeting.

In response to the 2008 market downturn, Saunders continued to position the WMPF away from equities. That saw the pension fund scale back equities exposure from 70% to 45% over the seven years Saunders was CIO. The transformation of the WMPF saw a corresponding growth in allocations to other asset classes, notably alternatives. By May 2012 the pension fund had 35% of its assets in alternatives (10% in absolute return strategies (including hedge funds), 10% in private equity, 9% in real estate with around 3% in both infrastructure and commodities).

Under Saunders, the WMPF also used hedge funds in other portfolios, including Far East equities and commodities. The higher diversification among asset classes and reduced equity exposure contrasts with the average allocations of UK local government pension funds as a whole, which have around 61% exposure to quoted equities (See Fig.1).

Advising Man Group
In the senior advisory role, it is expected that Saunders will spend about 60% of her time helping the asset manager ensure products are a good fit for local government pension funds. She will, for example, ensure that reporting is more tailored to local authority requirements and advise on what she sees as an appropriate risk/reward trade off in investment products for local authorities.  With mandates, Saunders will work with Man to address the key points in the request for proposal responses. Local government pension funds go through a long and arduous process – the so-called OJEU – in selecting asset managers, something Saunders is well versed in. She will be able to provide experienced counsel to Man on prospective clients’ expectations.

“Judy’s experience will prove invaluable in improving our ability to meet client needs in the UK,” says Dackombe. “This represents a significant part of our institutional client strategy.”

The second broad aspect of her role will be in representing Man externally and acting as an ambassador in respect of using alternatives as part of investment strategy, in particular hedge funds. This will involve various outreach roles such as representing Man at local government pension fund conferences and providing general expertise in a thought leadership role.

Governance focus
In advising Man, governance matters will be another important focus for Saunders. Her extensive experience here should play well.

“One of the key areas that local authorities are concerned about is governance issues,” Saunders says. “The hedge fund industry to a certain extent may not have attracted the best publicity on governance. Man Group is a founding member of the Hedge Fund Standards Board, which is all about promoting best practice and good governance and that is not widely recognised. It should be. Good governance is one of the areas the local government sector is focusing on.”

At a time when all asset managers are looking to new ways to serve investors, Saunders’ pension fund experience will offer valuable perspectives. For Man Group, which spans single manager, multi-manager and solutions like managed accounts, the aim is to offer local government pension funds a broad range of services. “Man Group can offer clients a bespoke portfolio of hedge funds according to an individual fund’s risk /return requirements,” says Saunders. “This was how I approached the absolute return portfolio when I was CIO at WMPF, but I recognise that many local authority pension funds may not have similar resources.”

Saunders’ approach to hedge fund investing was to combine different strategies at varying levels of risk and return. “I don’t have a crystal ball,” she says. “It is about diversification, risk management and actually not wishing to shoot the lights out. The objective is to achieve a sustainable, less volatile and modest positive return in all market conditions”.

One area where Saunders has observed progress is with the transparency and protection available to investors through managed accounts. But she is also concerned to press for hedge funds to be more aligned with investors: not just on fees, though that is important, but also on fund liquidity and on stamping out the use of side pockets.

“Having Judy on board is a tremendous asset,” says Dackombe. “As an advisor we can bring everything together that is important to local authority schemes. With Judy we have somebody who has done it from their side of the fence.”