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Environment Agency reviews property, infrastructure, forestry and cleantech

Fund’s tri-annual review could increase risk and broaden its palette of RI asset classes.

The £1.5bn (€2.1bn) UK Environment Agency Pension Fund could extend its exposure to responsible real estate investments into Europe as it embarks on its tri-annual strategic review.
The fund, which has become a leading light in responsible investment, will also carry out reviews of infrastructure, sustainable forestry, private equity and clean tech to decide if it could invest more or make new allocations.
Howard Pearce, head of pension fund management told Responsible Investor: “Currently we have a UK property mandate invested with Morley. Our investment committee is due to review this and look at extending our investments into Europe and possibly other markets in 2008.” He said additional research into various types of infrastructure and sustainable forestry was part of a necessary learning curve: “Some of our Committee members are nervous as to whether some of these investments are totally compatible with our environmental overlay strategy”
Regarding private equity, which already makes up 5% of the fund’s portfolio via a segregated fund of funds mandate with Robeco, the Dutch fund manager, Pearce said: “Our 5% allocation was originally £50m and due to the overall growth in our fund will soon be £80m, so our commitments have risen considerably. We’re very keen on the asset class, particularly as new innovativecompanies are looking to access the main stock markets via the private equity route. We already approach cleantech through our private equity arrangement, and as these companies grow there might be more opportunities in the quoted small cap sector that are worth looking at also.” Carbon trading is another theme where the fund is very carefully assessing its policy and options: “It’s not yet proven as an investment product in our eyes and as the UK adminstrator for the EU ETS we might have some probity issues to take care of first”. However, Pearce said the fund was unlikely to make allocations to responsible hedge funds because of question marks over performance.
Since 2005, the fund has hired 11 specialist fund managers to run assets with a 100% environmental, social and governance overlay.
In the first year of the strategy, the fund beat its benchmark by 0.8% and increased its solvency margin by 4%. Its best performing manager, Sarasin, returned 9%. The fund also increased its governance presence, lodging 50 shareholder resolutions over the year, an increase of 80%.
Year two was better. The fund was 1.2% up against its benchmark and recorded a further 3% increase in solvency. Eight of the fund’s managers exceeded their benchmark and four beat their performance targets.
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