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UK Corporate DB Plans’ Deficit Soars 60% in March

Despite the sharp rise, the aggregate deficit is down 29% from 2017.

By Michael Katz

The aggregate deficit of the 5,588 schemes in the PPF 7800 Index is surged 60% to £115.6 billion ($164.5 billion) during March, from a deficit of £72.1 billion at the end of February, according to the Pension Protection Fund, the UK’s pension lifeboat for collapsed companies. 

Despite the sharp increase in the funds’ deficit during the month, it is still down nearly 29% from the same time last year, when an aggregate deficit of £161.8 billion was recorded at the end of March 2017.

As a result of the increased deficit, the aggregate funding level for the funds decreased to 93.1% from 95.6% the previous month, but was above the 90.5% funded level reported at the same time last year.

Total assets were £1.57 trillion, a 0.1% decline during the month, and a 1.6% increase from the year-ago period, while total liabilities rose 2.5% to £1.68 trillion for the month, but fell 1.3% over the year.

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Nearly 68% of the plans, or just under 3,800 were in deficit, up from just over 3,600 at the end of February (64.6%), but down over the course of the year from nearly 4,000 (71.3%). Meanwhile, the number of plans in surplus decreased to just under 1,800 at the end of March (32%) from 1,980 at the end of February (35.4%), but increased from just over 1,600 plans surplus at the end of March 2017 (28.7%).

Among the plans in deficit, the aggregate deficit at the end of March increased to £217.6 billion from £187.6 billion at the end of February. However, this was still below the £246.7 billion aggregate deficit reported at the end of March 2017. And among the plans in surplus, the total surplus fell to £101.9 billion at the end of March from £115.5 billion at the end of February, but rose from the year-ago period when the total surplus of all plans in surplus stood at £84.9 billion.

The PPF reported that liabilities increased by 2.5% during the month, as conventional 15-year gilt yields fell by 19 basis points, and index-linked 5- 15 year gilt yields rose by 1 basis point from the end of February. Assets decreased by 0.1% in March, as equity prices moved lower, but were offset by an increase in bond prices. Over the year to March, conventional 15-year gilt yields were up by 7 basis points, index-linked 5- 15-year gilt yields were up by 34 basis points, and the FTSE All-Share Index was down by 2.7%.

According to the PPF, equity markets and gilt yields are the main drivers of funding levels, while S179 liabilities are sensitive to the yields available on a range of conventional and index-linked gilts.

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Home > News > Asset Allocation > CalPERS Invests $1B in ESG Global Equity Portfolio
Asset Allocation

CalPERS Invests $1B in ESG Global Equity Portfolio

Another $260 million invested in synthetic equity portfolio.

By Randy Diamond

The California Public Employees Retirement System (CalPERS) has invested $1 billion in a new internally managed environmental, social, and governance (ESG) global equity portfolio and added another $260 million to a second internally managed $7.5 billion synthetic equity portfolio, showed documents presented at the system’s investment committee meeting on April 16.

While CalPERS Chief Investment Officer Theodore Eliopoulos has rejected overall portfolio tilts in the $350.9 billion retirement plan’s portfolio, the new ESG investment portfolio is an attempt to use such factors in a very small slice of the CalPERS portfolio.

The documents show that the new ESG portfolio was funded in February 2018 and its investment methodology was developed by investment advisory firm QS Investors of New York, New York. CalPERS entered into a five-year contract, without competitive bidding, for QSI to develop the strategy, details a CalPERS internal analysis in April 2017 of investment costs.

The value of the contract CalPERS is paying QSI could be more than $1 million per year over a five-year contract period, the CalPERS analysis shows.

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Eliopoulos told an investment committee meeting in June 2017 that the retirement plan had rejected overall portfolio tilts on ESG factors because of the inconclusiveness of studies in terms of ESG adding value to the CalPERS portfolio. But Anne Simpson, CalPERS investment director, sustainability, told CIO that CalPERS was exploring various portfolio tilts for its ESG program. She did not offer specifics and, on Monday, neither did CalPERS spokeswoman Megan White.

The $260 million added to CalPERS synthetic equity portfolio will expand what has been one of the pension plan’s most successful equity strategies. CalPERS data shows that the synthetic portfolio, which uses future contracts, derivatives, and other instruments, had a 24.42% return in the one-year period ending Dec. 31, beating its custom benchmark by 120 basis points.

On a five-year annualized basis ending Dec. 31, it produced an annualized rate of return of 16.81%, 129 basis points above its custom benchmark.

Almost 80% of CalPERS $200 billion global equity portfolio is internally managed. This includes index strategies, enhanced index strategies, and active strategies.

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