Our Pension Committee has adopted a more flexible approach to the Active Fund future investment strategy and asset allocation so that we can respond responsibly and robustly to both the changing global economic environment and impacts of climate change.
The strategy is intended to get maximum value from the Fund while minimising risk, and uses multiple levers to achieve this (active mandates, specialist benchmarks, detailed risk analysis.). A key aspect of the new investment strategy was to make a material commitment to real assets (property, infrastructure, forestry and agriculture) of up to 12% of the Fund.
We have set a target that by 2015 some 25% of the Fund will be invested in the sustainable and green economy. As at 31 March 2014, 13% of the Fund was invested in pure play clean technology, companies which are principally engaged in the field of alternative energy, with an additional 11% in broader, but strongly sustainably themed investments, giving a total of 24%.
We have made significant allocations to “alternative beta” approaches in equities that do not use the usual market capitalisation weighted benchmarks, as it is expected these will offer superior long term risk adjusted returns.
To maintain the percentage of the quoted equity and bonds close to the target percentages, the Fund has adopted a rebalancing programme that automatically brings the Fund back in line with the agreed allocation if market movements change the asset allocation within the Fund. In 2013 the Committee decided to wind down the Fund’s currency hedging programme, as it was not effective at reducing risk in equities. Potentially more effective approaches to managing and reducing risks are currently under review.
Although our managers added considerable value over the year we continue to be very conscious of costs and value for money. We have negotiated fee reductions or concessions with four managers this year, leading to fee savings of potentially £320,000 per annum in future years. Our active managers generally outperformed, adding some £30.5m in value over the year in excess of their fees.
Overall the Fund had a very successful year in terms of financial performance, outperforming its strategic benchmark by 3.9%.
For more information please see our Responsible Investment Policy guide.