UK PPF updates investment principles following insolvencies
UK - The Pension Protection Fund (PPF) has updated its statement of investment principles (SIP) in response to the expected increase in its funds under management because of the surge in company failures.
The changes hinge around pension schemes in assessment - the period during which the PPF decides whether to assume responsibility for a scheme whose sponsor has gone bust.
The updated SIP says the PPF board will engage with trustees of schemes entering assessment to encourage coordination with the board's investment strategy and minimise the costs of transitions. The board will also monitor the schemes' asset allocations, adjusting the PPF's own asset allocation where necessary to compensate for any imbalance.
Furthermore, the board will consider using its programme of interest rate and inflation hedging to mitigate the residual risks not covered by the investment strategies of schemes in assessment.
Martin Clarke, director of financial risk, PPF, says: "Previously, there has been no reference within our SIP to schemes going through the assessment process, even though they are included as provisions in our balance sheet where the evidence shows they are likely to be transferred to the PPF. We wanted to be more precise about our approach, and this will potentially mean we can be more proactive."
He adds: "In the past, we have used the assets we own as collateral to hedge some of the risks in the pipeline. But we have limited collateral, and a sizeable chunk of costs coming through which we want to restrict in terms of risk."
The PPF has also added a global tactical asset allocation class with a 2.5% strategic allocation to its £3bn (€3.49bn) portfolio in order to inject alpha into the overall return. At present, 16 managers are still in the tender process to appoint a manager and a decision is expected by the year-end.
Meanwhile, the PPF has appointed four more investment managers to run its global bond portfolio, which forms 50% of its assets under management.
Mondrian Investment Partners Limited and Rogge Global Partners Plc will be allocated funds to manage in the near future, while Credit Agricole Asset Management and Wellington Management International Ltd will be kept "on the bench" in anticipation of a future growth in funds.
The global bond segment is currently split between Goldman Sachs Asset Management and PIMCO, whose services are being retained.
Clarke says the new appointments have been made to increase diversification opportunities.