UK – Debate over the coverage of the Universities Superannuation Scheme’s asset allocation continues to rage in the letters pages of the financial press.

The Financial Times ran a critical story earlier this week, which prompted an angry response from scheme actuary Edwin Topper.

The matter has prompted a flurry of new letters today in the paper. Although some were from industry experts, perhaps the most telling was from a USS beneficiary, an academic at the University of Bristol.

“Edwin Topper’s letter about the current state of USS finances may satisfy those interested in the arcane esoterica of FRS17 numbers but certainly does not satisfy me as a USS pensioner,” wrote Ron Johnston.

Andrew Smithers, chairman of Smithers & Co., drew attention to two questions. He asked: “Were those advising the trustees of the Universities Superannuation Scheme aware of the general agreement among financial economists that equity returns exhibit negative serial correlation? If so, did they draw the attention of the trustees to the consequences?”

The London School of Economics’ Ros Altmann said criticism of the fund’s decision to diversify asset allocation seems less appropriate.

“Traditional over-reliance on equity investments, with no downside protection, was a flawed approach to matching pensions liabilities over time. There is little economic rationale expecting equity returns to keep up with salary inflation and longevity. Yet switching to bonds is not the answer for most funds.”

Danny Truell, chief investment officer of the Wellcome Trust wrote: “Long-term investment is not a ‘punt’: a cashflow-positive indefinite university pension scheme and a perpetual endowment both have long-term horizons and the ability to absorb short-term volatility.

“They can use these so as to exploit market inefficiencies and illiquidity in a way that increasing numbers of corporate pension funds with short maturities and weaker sponsor covenants understandably cannot or will not.

“Diversification from equities into ‘alternative assets’, which make up over 30% of the Wellcome portfolio, further captures these competitive advantages.”