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Shell Fund to Expand Alternative Investments

THE WALL STREET JOURNAL

By Mark Cobley

Of FINANCIAL NEWS

OCTOBER 12, 2009

By MARK COBLEY

One of the U.K.’s biggest pension plans is moving forward with a strategy to invest hundreds of millions of pounds in alternative assets, potentially including hedge funds for the first time.

The £10.6 billion ($16.8 billion) U.K. pension fund for oil company Royal Dutch Shell Group PLC agreed to a new strategic investment plan over the summer, according to a recent report to members of the pension plan. This includes a 5% allocation to alternative assets — a category that includes hedge funds, infrastructure, and commodity funds. The allocation will come on top of the 5% it already has invested in private equity.

The Shell fund is the latest big investor to give a vote of confidence to the hedge-fund industry, which went through the worst period in its history during the financial crisis last year. Last week, alternative-assets consultancy Preqin published a survey of 50 pension funds, insurers, family offices and other investors, and found that 73% of them said their hedge-fund portfolios had either met or exceeded return expectations, up from 62% that said so last year.

Shell’s fund trustees first raised the idea of a hedge-fund investment early last year. A move into bonds last year limited its losses, helping it to preserve a surplus of 2% at a time when most pension funds have slid into deficit. The trustee board wrote in the report to members that “well-chosen hedge funds can provide diversification benefits for the fund in volatile markets.”

They continued: “Moving to the new strategic asset allocation will require a significant amount of sales and purchases…. [I]mplementation has already started but is likely to take several months in the current financial climate, in order to minimize transaction costs and to avoid the loss of value in the current portfolios.”

The trustees couldn’t be reached for comment; Shell didn’t respond to a request.

Write to Mark Cobley at [email protected]

WSJ ARTICLE

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