PPF to implement LDI strategy for own assets
UK – The Pension Protection Fund is due to implement a Liability Driven Investment strategy for its own assets when its current strategy comes under review in the first quarter of this year.
“The PPF will be adopting an investment strategy based on LDI techniques,” PPF investment and finance director Partha Dasgupta told IPE.
Its asset managers are Insight Investments and PIMCO with Goldman Sachs Asset Management as a deferred appointment. State Street acts as custodian and transition manager.
The PPF’s first-year assets of £150m (€220.5m) came from the flat rate levy. It currently has 100% of this invested in bonds.
The PPF also “supports actions taken by pension schemes to reduce risk”, Dasgupta added on the sidelines of the Pension Fund Liability and LDI conference held in London.
The PPF and the Pensions Regulator recognise there is risk in the system, said a PPF spokesperson.
The risk based levy proposals - developed with industry - include a powerful set of incentives for schemes and their sponsoring employers to reduce risk.
These include the recognition of contingent assets and deficit repair contributions. Lower risk in the system will lead to lower risk based levies.
Reducing risk in the system “is good for the scheme and the scheme members”, said the spokesperson.
According to the PPF, the risk-based levy is not taking scheme asset allocation into account as a risk factor in 2006/2007.
However, the spokesperson told IPE that a separate consultation process would be established to look at whether the PPF can take asset allocation into account in the future.
A move to LDI strategies by schemes would also play a key part in reducing risk, and influence the risk-based levy.
However, the PPF was quick to point out that it would not tell pension funds how to allocate their assets.
The event was taking place as a meeting was taking place to discuss the proposed National Pension Savings Scheme.
"We said that the Pensions Commission report is the right framework for debate, but that there may be different ways of achieving its objectives,” said pensions minister John Hutton.
"The Pensions Commission's recommendations have already succeeded in moving the debate forward about charges on pension saving. Enhancing the value of pension saving by reducing charges is one way of improving confidence.
“The NPSS is one option for encouraging more retirement saving. Industry groups have put forward their alternatives and we will now look at the detail before publishing our White Paper in the spring."