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 are set out in the Statement of Investment Principles. This document is updated regularly and a copy is available to members from Invensys Pensions.
To a large extent, the Trustee has invested in assets that have a profile that closely matches the liabilities by using bonds or ‘bond-like’ assets. This helps the assets to match the valuation movements in the liabilities, thereby reducing the volatility of the Scheme’s funding position.
The Trustee is not able to match fully the liabilities of the Scheme with its assets. This is mainly because of the requirements imposed by the Company. This requires the assets of the Scheme to target a performance return equal to the discount rate used for the valuation of the liabilities on a Technical Provisions basis, currently gilt yield + 1.0% per annum.
The Scheme’s investments are classified in two categories:
1. A Liability Matching Fund (LMF). This is used to mitigate the Scheme’s interest rate and inflation risks. The LMF is composed exclusively of assets perceived to have a relatively low risk:
- UK Government bonds
- Network Rail bonds
- cash equivalent instruments.
BlackRock, the asset manager managing this portfolio, is also permitted to use derivative instruments, such as interest and inflation swaps, and gilt repurchase agreements. The LMF currently represents 60% of the assets, which are held directly via the Scheme’s custodian platform with BNY Mellon.
2. An Investment Portfolio. This seeks to access the risk premium of a diversified portfolio of return-seeking assets. It also seeks to benefit from the additional performance available from active management, where considered appropriate. The total Investment Portfolio currently represents 38% of the assets.
Mandates using primarily investment grade bonds make up 25% of the assets and were managed by:
The remaining 13% comprise:
- a Fixed Income Global Alpha (FIGA) Fund (Hedge Funds: BlackRock)
- a Dynamic Asset Allocation mandate (DAA: Barings)
- two broad bond portfolios (AllianceBernstein, Pioneer)
- a listed equity portfolio (LGIM)
- a loans mandate (M&G).
Around 2% of the Scheme’s assets were allocated to DC and AVCs plans or left in cash to satisfy the Scheme’s short-term payment obligations.