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October 23, 2003
Henderson Wins Global Competition for Socially Responsible Pension Fund Proposals
    by William Baue

Henderson Global Investors’ plan combines innovation with practical experience to win an award for promoting long-term social responsibility in pension fund management.

Last week, the Universities Superannuation Scheme (USS), the UK’s third largest pension fund, and Hewitt Bacon & Woodrow, a pensions consultancy, named the winner of a competition for long-term, socially responsible management plans for pension funds. From a field of 88 entries, the panel of seven international pension fund experts chose the proposal submitted by Henderson Global Investors, a London-based investment firm that offers socially responsible investing (SRI) services.

“Henderson provided the most rounded solution, pulling together the best ideas from existing practice, as well as providing new ideas, such as implanting an individual from the consortium client within the fund manager to monitor day-to-day activities,” said Michael Musuraca, a trustee of the New York City Employees Retirement System (NYCERS) who served on the judge’s panel.

The global competition, called Managing Pension Fund Assets As If the Long Term Really Did Matter, asked entrants for blueprints to manage an imaginary 30 billion euro mandate that promotes long-term social, environmental, and fiscal responsibility. Henderson divided the fund into a 25 billion euro “core portfolio,” with 50 percent in equities, 20 percent each in bonds and property, and 10 percent in private capital, and a 5 billion euro “added value portfolio” that seeks higher returns through riskier investments.

“Every asset class would be managed to promote responsibility,” said Rob Lake, Henderson’s head of SRI engagement and corporate governance, who coauthored the winning pr oposal. “For example, the equity portfolio would be run on an enhanced index basis, and corporate responsibility ratings for each stock would lead directly to over- and underweighting.”

“The worst responsibility performers would have the lowest rating and the greatest underweights,” he added. “This differs from existing SRI approaches for pension funds by factoring a responsibility dimension into investing right across the market, not by excluding specified sectors or stocks that do not ‘pass a test.’”

Henderson’s plan also calls for continuous engagement through shareowner dialogue with companies not only to promote improved corporate social responsibility (CSR) performance but also to enhance CSR analysis.

“Responsibility ratings would also be applied to the value-added portfolio,” Mr. Lake told “For example, stocks with the lowest ratings could be priorities for shorting.”

Shorting is a strategy for profiting by selling overvalued stocks and then buying them again after their prices have fallen.

Henderson’s innovation extended even to its own compensation.

“Fees would also focus on long-termism, with a base fee supplemented by a performance fee earned only if the fund beat its benchmark over an extended period,” said Mr. Lake.

The judges, a panel including representatives from the International Finance Corporation (IFC), the private sector arm of the World Bank, PGGM, the Dutch health care workers’ pension fund, and the Ontario Teachers' Pension Plan (OTPP), short-listed seven other entries. These entries fell into two categories: corporate entries and individual or noncorporate entries. Two corporate entries came from Schrod er Investment Management and Sustainable Forest Systems. The five individual entries were recognized for their innovation with equal monetary awards from STW Fixed Income Management, which sponsored this category.

Ruth Kelly, the financial secretary of the UK Treasury, stated in her keynote speech at the awards ceremony that the government intends to sponsor a leading academic to conduct an independent review of the ideas generated from the competition.

“We would be serious about putting our full resources and capabilities behind these ideas, to create an investment approach built on shared values,” said Arno Kitts, Henderson’s director of institutional marketing.

“A portfolio of several billion dollars would be needed to make the proposal that won the competition viable,” added Mr. Lake. “But individual components of the package could work in their own right, such as an enhanced index equity portfolio with a responsibility-weighted index.”


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