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Pension Protection Fund assets hit £22bn as LDI drives 26% return

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The UK’s Pension Protection Fund (PPF) has seen its assets increase by 39% over the course of the last financial year, while its funding ratio rose to 115%.

The lifeboat fund for pension schemes whose sponsoring employers have become insolvent saw 61 schemes join in the year to April 2015, bringing with them a total deficit of £322m (€440m).

Despite this, the PPF managed to add 3 percentage points to its funding ratio.

It did, however, see a 2-percentage-point drop in the probability of achieving self-sufficiency by 2030.

Its investment portfolio returned 25.9%, mainly due to returns from its liability-driven investments (LDI) portfolio, with falling interest rates being the main driver.

The fund’s non-LDI investments performed relatively well, and its allocation to growth assets returned 7% – with CIO Barry Kenneth highlighting global bond portfolios, equity and real estate as key contributors.

The £22.6bn scheme generally measures performance against its liability benchmark, which the PPF outperformed by 2.5%, slightly down from the 2.9% in 2014.

Chairman of the fund, Lady Barbara Judge, said the global macro environment remained a concern and warned that the PPF could not become “complacent”.

“The global macro-economic environment and pension scheme funding remain volatile, which is reflected in the change in our probability of success,” she said.

“We remain on track and committed to a prudent approach that strikes a balance between protecting compensation payments for current and future members.”

At the end of March 2015, the PPF had the majority of its nearly £23bn in assets invested in debt instruments, which appreciated by more than £2.4bn in value over the course of the year.

It also saw a significant increase in its directly held property assets, rising from £181m to £682m in 12 months. 

The inflows are likely to be a product of the PPF’s decision to build a physical hedging portfolio, rather than rely on derivatives.

Kenneth told IPE last year that the amended strategy would see the so-called hybrid portfolio eventually account for 12.5% of assets, cash and bonds for 58%, alternatives 22.5% and equities 7%.

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