November 11, 2010 / 1:33 PM / 9 years ago

UPDATE 1-Barclays pension fund eyes emerging markets hike

* Emerging market exposure could be low double-digits

* Mulling active currency management

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By Cecilia Valente

LONDON, Nov 11 (Reuters) - Barclays’ (BARC.L) UK employees pension fund could double its exposure to fast-growing emerging markets, an executive said, as it seeks higher returns and a wider spread of investments.

The 17.3 billion pounds ($27.94 billion) Barclays UK Retirement Fund, one of the largest in the UK, currently invests about 6 percent of its total assets in emerging market equities.

“It would make good sense in the long-term for emerging markets total exposure to be at high single digit to low double-digit. It is a very compelling story but you have to be aware of certain risks, timing is important,” said Stergios Saloustros, head of dynamic asset allocation at the scheme.

Institutional investors are seeking returns away from their traditional domestic and Western-centric investments, due to concerns over ballooning public deficits and low economic growth forecasts.

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For a graphic charting inflows into emerging markets since the beginning of the year, click here

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Investment Management Association data however shows that UK investors allocate just under 2 percent of their portfolio to global emerging markets, virtually unchanged since mid-2008.

Saloustros was appointed in July to advise the scheme on its short-term investment opportunities as a part of reorganisation instigated by pension scheme CIO Tony Broccardo, who also hired an executive to take charge of asset management selection. [ID:nLDE6051FC]

Saloustros is also considering a change in the way the fund manages the risks associated with investments in foreign currencies.

At the moment the scheme, which pays pensions in pounds, is partially using passive currency management to protect itself against currency fluctuations. But Saloustros would like the scheme to profit from currency fluctuations, also known as active currency overlay management.

He sees opportunities to cash in on the weakness in the U.S. dollar.

“With the market consensus looking for a continued slide, it is probably one of the most one-sided bets at the moment,” he said, adding the fund’s investment committee has not yet considered his suggestion.

The Federal Reserve has embarked on a 600 billion dollar bond-buying spree to revive the economy, but the move is expected to weaken the currency further [ID:nLDE6A92OL].

Saloustros also sees opportunities in illiquid asset classes including private equity and hedge funds, which feature in the fund’s alternative investments portfolio alongside currency management, commodities and property.

“Illiquidity is a premium which we want to pick up. We have liabilities that go 90 years in the future, so why not take some of those assets to get this very valid premium?,” he said. (Editing by Sinead Cruise and Erica Billingham)

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