This is taken from The Guardian:

BBC fund ditches Deutsche and hedges with NewSmith

by Rupert Jones
Thursday September 1, 2005

The trustees of the BBC's £6.4bn pension fund have sacked one of its fund managers amid concern that the scheme is failing to hit investment performance targets.

They have also decided to put a "small" chunk of the fund into a hedge fund for the first time in an attempt to improve performance.

The BBC's final-salary scheme has long been regarded as an important part of its benefits package. It has 21,000 active members and also pays out pensions to more than 20,000 retired employees and their dependents.

In a bulletin to staff, the trustees stated that during the past year, the fund had recovered some of the value lost as a result of stock market falls, but Jeremy Peat, chairman of the trustees, said: "The fact that the scheme has marginally underperformed against its investment benchmarks is of concern to the trustees. We are looking to address this issue."

Some action has already been taken. The BBC recently decided to ditch Deutsche Asset Management as one of its UK equity managers, and has handed over "a major part" of the Deutsche portfolio to NewSmith Asset Management, the fund management business set up two years ago by a group of former Merrill Lynch high-flyers.

The trustees have also decided to risk controversy by investing a "small interest" in a hedge fund managed by NewSmith. Critics have claimed hedge funds - which are mostly based in offshore tax havens - are volatile and overly secretive, but they have become more mainstream in recent years, and many British workers have some of their pension cash invested in them.

At the end of March, the fund was valued at £6.4bn, up from £5.9bn a year earlier. Its total return for the 12-month period was 10.8% - 0.8% below its benchmark figure of 11.6%. Over five years, the performance was 0.2%, which was 0.3% below its benchmark.

The trustees are aware of the situation and have asked the scheme's investment committee to review what can be done to improve performance, the bulletin said.

More than two-thirds of the fund is invested in stocks and shares, with just under 17% in bonds. Two years ago the trustees decided to sell some shares and increase the bond holding to 30%, but opted to hold off making the move for a while. As a result the fund has benefited from a recovery in the value of its equity holdings.