Boots turnabout no surprise to consultants

NOTTINGHAM, England — The decision by Boots Co. PLC's pension fund to abandon its 100% bond allocation is not a shock to U.K. consultants and money managers.

Three years after the £2.84 billion ($5.21 billion) plan boldly abandoned equities, the company last month announced plans to shift 15% of the pension money into other asset classes, including equities. The move was made to better match long-term liabilities, which trustees. thought could be better achieved through other asset classes, said Chris Laud, investor relations analyst at Boots.

Actuarial consultants Hewitt Bacon & Woodrow, London, assisted. Hewitt officials did not return calls by press time.

This isn't a change in strategy; the goal has always been to achieve the best liability match, Mr. Laud added.

He would not provide details on the money managers to be hired or how the 15% will be allocated. He said no decision has been made as to how much money sole manager Legal & General Investment Management, Ltd., London, will continue to run for Boots. He declined to give a timeframe for the change.

Consultants and money managers were not surprised by Boots' decision.

"Personally, I'm not a believer in absolute strategy," said Tim Gardner, global head of Mercer Investment Consulting, London, referring to Boots' highly publicized shift into 100% bonds. "I wouldn't advise my clients to do that," he added.

Mr. Gardner emphasized that the plan's latest strategic move reflects the realities of investments — in trying to match assets to liabilities.

Overall, there's been more of a trend over the past 18 months of going into riskier assets, said Gary Marshall, sales and marketing director at Aberdeen Asset Management, London, who also said Boots' recent announcement is not an eyebrow-raiser. "Fundamentally, if you restrict yourselves to bonds, you can expect reduced returns. For the long term, you've got to increase returns overall," which equities can do.

Vincent de Martel, director, structured and alternative investment management at AXA Investment Managers U.K. Ltd., London, sees Boots as a "smart pension scheme" and said he views the slight shift into equities as a continuation of the company's liabilities-matching exercise, which started with the 100% allocation to bonds. It's not necessarily a reassessment, said Mr. de Martel, who agreed that for the long term, a pension plan should have equity exposure.

George Henshilwood, partner at consultancy Hymans Robertson, Glasgow, said it's not a huge surprise that Boots made the move — especially since John Ralfe, Boots' former head of corporate finance and the man who spearheaded the move to bonds, left the company a year after the switch.

But, he said, the move was a surprise in that it's a "philosophical change" for the pension fund. Mr. Henshilwood believes it's not unreasonable to have some equity risk on the balance sheet. Trustees, however, have agreed to a change that will increase risk, which might cause some discomfort, as a 100% bond allocation provides safeguards that equities don't, he added.

The phrasing Boots used — that the change is to better match its long-term liabilities — suggests "they kind of didn't get it right the first time," said Roger Urwin, global head of investment consulting at Watson Wyatt LLP, London. "The new allocation is what we'd suggest to our clients," he added.