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USS possibly “horribly wrong” on equities

UK – A leading fund manager has labelled the Universities Superannuation Scheme’s equity exposure an “animal-spirited punt” which could go “horribly wrong”.

The comments from Lindsell Train Ltd.’s Nick Train are the latest in a very public debate over the £22bn (€31.9bn) pension fund’s asset allocation that erupted earlier this month.

The saga began with an article in the Financial Times citing pension consultant and former Boots finance chief John Ralfe. It led to angry exchanges from fund officials in the paper’s letter’s pages.

USS scheme actuary Edwin Topper said the story made a “number of inaccurate statements” and conclusions that could not go unchallenged.

Now Train – who started the firm with former GT Management colleague Michael Lindsell in 200 – has entered the fray.

“The scheme has 80% in stocks, compared to the industry average c65% and a deficit of c£3.5bn,” Train wrote in a note to investors today.

“From Ralfe's perspective that makes its pensioners dangerously exposed to any further declines in the equity market.

“The scheme's officers argue the opposite - that the long tail of its liabilities means that above average equity risk and the excess returns to be expected for taking that risk are appropriate and desirable.

“Both positions are plausible, both based on sophisticated analysis of past returns, volatility and liability benchmarking.

“Either position, though, could turn out horribly wrong. In the end, the USS' extra £3.3bn of equity exposure, compared to industry average, is an animal-spirited punt - the stakes are high and the outcome uncertain.”

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