UK's Multi-Employer Pension Fund Revises Investment Strategy for Improved Returns

(January 10, 2011) — In response to low funding and solvency levels, and tapering future return expectations due to falling interest rates, the UK-based occupational Pension Trust, with nearly $7 billion in assets under management, is offering an updated investment service in an effort to provide better risk-adjusted returns relative to liabilities.

“With funding and solvency levels significantly below 100%, and with future return expectations having dwindled as interest rates and market sentiment have fallen, the new strategy aims to allow for the generation of better risk adjusted returns relative to liabilities for pension schemes,” said Chief Investment Officer David Adkins in a statement. “In addition, our new investment governance structure, which has been in place in its entirety for less than a year, I feel is better equipped to produce better risk adjusted returns compared to the past.”

Adkins added that going forward, the UK firm will be taking a more responsive approach to fluctuations in market conditions by providing daily estimates of funding and solvency levels, improving performance reports.

The UK fund, under the new strategy, plans to invest more in alternative growth assets to hedge against risk, shifting away from quoted equities. Meanwhile, the fund will ensure that its new investment approach outperforms their benchmarks while relying more heavily on passive index-tracking investments.

The Pension Trust has also tweaked its governance structure by forming three sub-committees to support the main investment committee: the Funding and Investment Strategy Review Group (FISRG), the Investment Strategic Opportunities Group (ISOG) and the Investment Manager Review Group (MRG). According to the fund, the FISRG will approve funding conclusions with scheme sponsors within guidelines set by the board, recommending investment strategies to the investment committee. The ISOG will review, recommend, or reject new investment ideas before they appear in front of the investment committee, and the IMRG will monitor the performance of managers and other providers.

The Pension Trust, established in 1946 and now the 44th largest pension fund in the UK, is an occupational pension scheme and one of the leading multi-employer occupational pension scheme for the charitable, social, educational, voluntary and not-for-profit sectors. The Pension Trust’s products include: 29 stand-alone final salary schemes, five multi-employer defined benefit schemes, a money purchase plan and a multi-employer career average revalued earnings (CARE) scheme.