The Merchant Navy Officers Pension Fund, a GBP3 billion U.K. scheme, is soon to launch a GBP200 million swap mandate to protect future liabilities. The mandate will protect capital by investing in a pooled interest-rate swaps vehicle, the returns of which match expected payments to members until 2014, said Alick Stevenson, director of investments in Leatherhead, Surrey.
Stevenson said the fund is effectively selling credit, taking the cash and buying a series of set cash flows for the next 10 years. "We didn't feel our risk allocation in the [credit] fund was being rewarded sufficiently, so we reduced our exposure to U.K credit," he said. He declined to name the swap counterparties, the manager of the mandate or the LIBOR spread MNOFPF pays, but said, "the manager handling this has a limited number of swap counterparties to choose from."