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We aim to deliver a truly sustainable Pension Fund that delivers financially to meet the objectives of our scheme employers and members.

The Committee has set the overall investment objective for the Fund after consideration of the actuarial valuation, contributions and the maturity profile of its liabilities. The investment strategy is then agreed by the Committee to meet this objective. The strategy remains focused on seeking to get maximum value from our assets within an appropriate level of risk while minimising risk, ensuring environmental, social and governance considerations are fully integrated, and furthering our commitment to responsible investment. It uses multiple levers to achieve this: active mandates, specialist benchmarks, detailed risk analysis, and a fully diversified range of assets across global markets.

For 2017/18, the Fund’s investments were based on the investment strategy agreed in 2017 following the 2016 triennial valuation. This built on the strategy developed in 2015, which created a high level allocation to diversifying growth assets, recognising that there was a case for reducing equity risk, but that bonds, while low risk, were not attractive from a return perspective. The investment strategy framework sets ranges for allocation to three areas: bonds, equities and diversifying growth assets. This allows flexibility while limiting risk.

Our target allocation to diversifying growth assets (real assets, growth fixed income and private debt) was increased, funded through a reduction in our allocation to equities, with the disinvestment of the £124m Standard Life UK equity mandate. Equity futures were used to avoid cash drag, providing exposure to the global equity market over the 9 months it took for the UK equity mandate proceeds to be fully deployed into real asset and private debt investments.

In 2017/18 we sought additional private debt investments to meet our increased strategic target and provide diversification. Private debt funds lend directly to companies and projects. The opportunity has been created by the withdrawal of banks from much of corporate lending activity, which has led to significant demand from businesses to access alternative sources of lending. Although formal integration of ESG considerations is at an early stage in this sector, we feel it is an attractive area for responsible investment as it is about supporting real business to grow and employ people, and has limited exposure to high risk areas. We are looking to invest in further funds in this area during 2018/19 as we continue to believe it is an attractive area and we are below our medium-term target allocation.

We have made further progress on our real assets portfolio (property, infrastructure, forestry and agriculture) although, because we have increased our target allocation and it takes time for suitable investments in real assets to be identified and then invested in, actual investment is below target.

We continued work on the implementation of our Policy to address the impacts of Climate Change. Analysis done in support of this policy highlighted the significant climate change impact of certain strategic investment decisions, unless mitigated, notably the high exposures resulting from allocations to UK equities and to ‘value’ equities. This analysis was a consideration in our decision to continue reducing our exposure to UK equities. It also led to our search for a manager to replace our passive ‘value’ equity mandate and provide what we term Sustainable Enhanced Value Equities to ensure our exposure to ‘value’ equities is compatible with our low carbon ambitions. Robeco was selected to manage a £150m mandate using quantitative investment techniques to provide a low carbon approach to ‘value’ investing, within a low cost, tax efficient, pooled fund solution.

Reduction in carbon footprint and reducing our fossil fuel exposure for equities

Asset classes
Asset Class  % Weight 2017/18
Global equities 42.0
Emerging market equities 5.0
Index-linked gilts 8.5
Corporate bonds 20.0
Private equity 4.0
Real Assets 12.0
Private debt 3.0
Total return bonds 5.0
Cash 0.5
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