The objective of the portfolio is to return the Fund to a funding ratio of 100% whilst minimising Scheme employer contributions. The actuarial assumption is that this will be achieved by 2040 (being the 27 year recovery period assumed for the major Scheme employers in the 2013 actuarial valuation). In doing this we wish to minimise any risk of upward changes in Scheme employer contribution rates.
We will seek to achieve this objective by setting the following investment aims:
- To deliver a total return of 4.0% (net income plus capital gain) over the annualised rate of UK inflation (as measured by the change in the Consumer Prices Index (CPI) on assets whilst aiming to deliver a minimum investment income yield of 2% (being our best estimate of the level of income required to avoid eroding capital to meet the gap between contributions received and Scheme benefits payable).
- To minimise the impact of interest rate and inflation expectation changes on the funding ratio
- To keep asset value draw-downs to a minimum.
To achieve these aims we will invest according to the following tenets:
- We will diversify the portfolio across a range of different return seeking assets.
- We will manage the portfolio over the investment cycle with an expected normal time horizon for investments of at least 3 years.
- We will aim to minimise transaction costs and fund manager fees.
- Low volatility is preferred to high volatility.
- We acknowledge that there will be periods when equities will produce significant capital gains or losses. Over the long term the return achieved may not adequately compensate investors for the higher volatility.
- We consider that there is little value to be gained from short term active management in highly efficient markets but that there may exist opportunities to extract value from asset allocation and/or minor inefficiencies within markets.
- We consider that active managers can add value (net of their fees) relative to index-tracking managers by taking a long term view and/or exploiting inefficiencies on the market.
- We will use benchmarks to monitor rather than to manage performance.
- We will manage currency exposure separately from the underlying asset exposure and in accordance with our bespoke currency benchmark.
Approved by the Berkshire Pension Panel
28 April 2014
Investment Philosophy 04/14