(October 29, 2013) – The UK’s Pension Protection Fund (PPF), has reported an 11.1% total return on invested assets, helping it achieve a £1.8 billion surplus for the financial year.
The fund’s annual report also revealed that the PPF has, for the first time, invested directly in property.
While the fund has previously invested in property through pooled vehicles, this year saw it appoint CBRE to manage a directly-invested portfolio.
The report made reference to the PPF exchanging contracts to buy two investment properties for a value of £10.2 million, which were subject to approval.
aiCIO can reveal that those two properties are retail spaces in Windsor and Chesterfield, and both contracts were completed after the financial year end, so any returns will show in next year’s results.
Many UK pension funds have jumped into the direct property space in recent months, including Associated British Foods and Strathclyde Pension Fund.
The main reason for the overall surplus figure however, was attributed to the global equities part of the portfolio, which delivered a 16.3% average index return.
Global bonds delivered a 4.8% average index return. A further 1.4% return was also gained over these indices by actively managing the portfolio.
The investment strategy adopted for the bonds has changed over the past year. In 2012 managers with competencies in absolute return strategies, asset-backed securities and emerging market debt, global sovereigns, and corporate credit were added to the global bond asset class.
“The objective of the exercise was to provide more flexibility for managing the risk within the asset class and to provide for a broader range of investment opportunities,” a spokesman explained.
The overall performance of the PPF’s investments have led to the fund increasing its probability of meeting its long-term funding target—to reach self-sufficiency by 2030—to 87%.
The PPF now has £15.1 billion in assets and £11.8 billion in liabilities, leading to a coverage ratio of 109.6% once the provisions have been taken into account.
However, this figure did not take into account the recent additions of two pension funds from UK Coal, and the report noted that had the provisions from these two been taken into account, the funding ratio would actually be 107.1%.
A spokesman from the PPF told aiCIO that it was worth emphasising that this calculation is before allowing for recoveries.
“The disclosure (in the annual report) is of the impact to the funding ratio if we’d provided for UK Coal deficits at 31 March 2013. The loan agreements subsequently negotiated reduce the impact on the funding ratio significantly,” they added.
The past year has also seen the PPF appoint a new CIO—Barry Kenneth. He told aiCIO last month that he had great aspirations for the UK’s pension lifeboat: to make it easier to act on investment opportunities.
Years at Morgan Stanley and RBS taught Kenneth that myriad levels of sign-off mean chances are frequently missed by pension funds. “Governance processes can be prohibitive,” he said. “I want to ensure that, although governance levels stay strong, the investment team has clear decision-making powers, so if an opportunity comes up we can act on it.”
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