Transport for London routes cash into hedge funds

LONDON Fri Dec 7, 2012 6:11am EST

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LONDON (Reuters) - The pension fund of Transport for London, the government body in charge of the capital's transport network, is putting more money into higher-risk hedge funds to help to plug a funding gap.

TfL's fund is in the final stages of investing with hedge funds Och-Ziff Capital Management (OZM.N) and Arrowgrass Capital Partners, and is set to boost its holding with Bridgewater Associates, the world's largest hedge fund, TfL's investment officer Padmesh Shukla told Reuters.

TfL, responsible for London's public trains, trams, buses, bicycle system and the London Underground, known as the Tube, plans to invest a quarter of its cash in so-called alternative assets, including hedge funds.

That compares with 12 percent invested in alternative assets for the year to the end of March, according to its 2012 annual report, up from 10.1 percent a year earlier.

The 6 billion pound TfL scheme joins the pension funds of the Church of England and particle physics laboratory CERN by hiking its investment in the secretive world of hedge funds.

Conservative investors such as pension funds are keen to diversify away from traditional asset classes like stocks and bonds where returns have been disappointing in the past year.

The TfL pension scheme covers almost 83,000 current and former employees. According to the most recent funding valuation, dated 31 March 2009, the scheme's assets were 1.2 billion pounds less than the amount it expects to pay out.

"Trustees have decided to increase the exposure to alternatives, including hedge funds, to improve the fund's risk-adjusted returns," Shukla said.

TfL has chosen some of the biggest - and wealthiest - names in the hedge-fund industry.

Connecticut-based Bridgewater is headed by Ray Dalio, who is worth $10 billion, according to U.S. magazine Forbes. Daniel Och, a former Goldman Sachs (GS.N) trader and founder of Och-Ziff, has $2.3 billion in assets.

The pension fund also recently put money into Gresham Investment Management, a commodities fund, and decided to reduce its allocation to Guernsey-headquartered BlueCrest Capital Management after shifting money out of its AllBlue fund and into its International and Trend portfolios, Shukla said.

BlueCrest was founded by Michael Platt, worth 650 million pounds, according to the UK newspaper, The Sunday Times "Rich List".

Shukla did not disclose the size of the planned allocations.

TfL already invests with hedge fund Davidson Kempner Partners, the annual report shows.

The fund's biggest investment is in overseas equities, which make up 40.4 percent of its assets. Some 16.5 percent of the money is in UK government bonds and 15 percent in UK stocks.

TfL, created after taking over from predecessor London Regional Transport in 2000, is controlled by a board chaired by Mayor of London Boris Johnson.

(Reporting by Tommy Wilkes.; Editing by Erica Billingham)

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