The BP Pension Fund grew 14% over the course of 2013 as it shed its deficit through strong returns on its majority equity portfolio.
It grew in size to £19bn (€22.7bn), up from £16.6bn, taking its coverage ratio back above 100% after two consecutive years of deficit.
Its funding ratio at the end of 2013 was 101%, up from 94% at the end of 2012 and 92% in 2011.
Despite paying out more than £500m in benefits, the fund’s investment portfolio provided a net return of £2.5bn but saw £123m of withdrawals from members.
BP’s internal investment management team secured positive returns in all classes except some international equities and its UK Gilt holdings.
All investments are managed in-house except Sterling fixed income allocations, which Baillie Gifford and Goldman Sachs Asset Management manage.
Its North American equity portfolio returned 28%, which the fund said was due to the US Federal Reserve’s “easy money policy” boosting asset values.
“Risk assets – equities in particular – enjoyed supernormal returns in 2013,” the fund said.
Japanese and European equities both returned 25%, and UK equities 20%, but the fund suffered in other Asian and emerging markets.
It also saw strong returns from property (12.1%) and private equity (14.1%) but experienced negative returns for UK Gilts (5.8%) and some international equities (3.8%).
The fund now holds 58% of assets in equities, 7% in property and 14% in pooled investment vehicles.
However, the fund’s equity allocation fell 2 percentage points as the scheme increased its index-linked fixed income exposure by 60%.
It also increased its use of pooled investment vehicles and expanded its directly held property portfolio, which included the purchase of a £27m supermarket from the M&G Secured Property Income Fund.
At the end of 2012, the trustees acted to increase the fund’s liability-driven investment programme, seeing derivatives, fixed interest and index-linked exposure increase over the year.
It now holds £17.3m in derivative contracts, up from £3m, after the trustees updated the statement of investment principles to move 3% of assets from growth to liability matching.
Despite the bumper returns from its equity portfolio, overall annual return on investment was 14.7% – 30 basis points below the fund’s benchmark.
The BP Pension Fund also strengthened its in-house team with two senior hires from Aon Hewitt and the Pension Protection Fund.