Investment Structure
The Scheme’s current investment objectives are to achieve investment returns that, together with the contributions paid by the Company and by members in the future, ensures the assets of the Scheme are sufficient to meet the benefits due to each member as they fall due over time.
Statement of Investment Principles
The Scheme’s strategy and objectives, together with full details of the investment process is set out in the Statement of Investment Principles (Version 9). This document is updated regularly and the latest version was agreed in December 2009. A copy is available to members from Invensys Pensions.
Investment strategy
The investment strategy is to achieve a return consistent with the Scheme’s Statement of Funding Principles, in order to ensure the assets of the Defined Benefit Sections are sufficient to meet the benefits due to each member as they arise.
The Scheme moved in 2006/07 to a general investment strategy of 80% Bonds, 20% Higher Performance Assets. The Bonds are included in a Matching Fund run by three Bond Investment Managers. During 2007/08, the higher performing assets were diversified to reduce risk in the investment portfolio, diversification that has not been modified since.
In the past the need for higher return assets was met through the allocation of a percentage of the portfolio to equities. This allocation has been reduced steadily over the years and stood at around 20% in 2006. In 2007, this exposure to equities was reduced further by broadening the portfolio to higher returning assets of different types; this diversification allowed the Scheme to reduce the risks related to higher performing assets. These are now invested in four different classes: i) broad bonds, ii) dynamic asset allocation, iii) a fund of hedge funds as well as iv) equities. These are managed by eight investment managers, who are targeted against an absolute return above cash.
Since the major transitions that took place in 2007, there have been no significant changes to the allocation within the higher performing assets.
Investment structure and managers
Investment policy
The Scheme’s investment strategy reflects the mature nature of the Scheme. At 31 March 2009, 99% of the Scheme’s membership was in receipt of a pension in payment (60%) or held a deferred pension (39%). This high level of maturity indicates the Scheme should operate an investment policy to ensure that the returns on assets meet the future known liabilities of the Scheme. The reduced risk implicit in such a strategy means that generally a lower return is targeted than in less mature schemes.
Given the mature nature of the Scheme, the Trustee has invested in assets which have a profile that is closest to that of the liabilities, namely bonds or “bond-like” assets. This has been an ongoing policy of the Trustee over the last seven years, with a significant increase in these matching assets from 2006 and 2007. The Scheme currently holds 80% of its assets in bonds, of which 45% are UK government bonds.
The Scheme’s investment objectives are to achieve investment returns that, together with the contributions paid by the Company and by members, ensure the assets of the Scheme are sufficient to meet the benefits due to each member and the expenses of the Scheme as they fall due over time.
The year in brief
The year in brief On 31 March 2009, the value of the Fund was £3,567m (2008: £3,895m). The investment return on the assets was (3.9%) compared to a Scheme specific performance benchmark that measured 4.9%. This compares to a return in 2008 of 4.7% against the Scheme specific benchmark of 10.3%. Investment managers are set a target return which is above the Scheme specific benchmark. Further details are provided in the Investment Report on pages 17 to 19.
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