The £13.8bn (€17bn) Strathclyde Pension Fund saw returns of 7% over its 2013-14 year, falling marginally below its benchmark after suffering losses in both its equity and fixed income portfolios.
The fund, which manages the pensions for the public workers and associated employers in western Scotland, saw losses of 7.4% and 7.3% in its emerging market and Asia ex Japan equity portfolios, and underperformed against its benchmark in UK, European and North American stocks.
As a result, the fund grew by 7% over the year, but fell 10 basis points short of its benchmark.
The fund allocated roughly three-quarters (75.6%) of its assets to equities, with 12.8% in fixed income and 9% in property.
Despite its losses in segments of its equities and fixed income holdings, and singling out property as a performing asset, the fund reduced property exposure in support of traditional assets and remains overweight equities.
It also said it expected to approve four separate investments, increasing its exposure to the renewable energy sector, and investing in a fund aimed at the drug royalty market.
Its annual review revealed a deficit of £1.9bn and a funding level of 87.9%, although it showed a substantial improvement on the £2.6bn deficit at the end of March 2013.
Positively, the fund returned 10.3% from UK equities and 17.5% from European stocks.
Property returned 13.1%.
In addition to losses in emerging market and Asian stocks, the fund also took a hit on its Gilt holdings and index-linked bonds.
“Most bond markets fell over the financial year after the announcement of some reduction in quantitative easing by the US Federal Reserve,” the fund said.
“Some of the highest investment returns were achieved in UK commercial property, where activity in markets outside London picked up markedly.”
Strathclyde, the largest local government pension scheme (LGPS) in the UK, also provided firmer details for investments into renewable energy, wind energy and healthcare.
Proposals have been submitted to board members seeking approval for an initial £45m seed investment into six different projects.
It’s New Opportunities Portfolio, which seeks outs local real estate and real assets, is set to invest in a range of different renewable technologies via equity holdings and investments in limited partnerships.
It is awaiting councilor approval for a seed $25m (€18.3m) investment into Healthcare Royalty Partners, a firm that specialises in purchasing drug royalty contracts.
The investment, which aims for an internal rate of return (IRR) of more than 12%, purchases drug royalty agreements between large pharmaceutical companies and universities or smaller drug development companies, and taking over receipt of payments.
The fund also adjusted its use of external managers, shifting allocations from Henderson Global Investors and Legal & General Investment Management (LGIM) to PIMCO.
LGIM remains the fund’s largest external manager, with around £5.8bn in mandates, or 41.8% of assets.