Fund Investments

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Investment of the Wiltshire Pension Fund

Funding Policy

The basic objective of Local Government Pension Scheme (LGPS) pension fund investment is to minimise the level of contributions paid into the Fund by employer bodies to ensure its solvency. Therefore, investment strategy is necessarily intrinsically linked with funding policy.

All LGPS funds are required to publish a document called a “Funding Strategy Statement” (FSS).  The Wiltshire FSS can be supplied upon request or viewed at www.wiltshirepensionfund.org.uk/fundingstrategy.pdf.

The former Office of the Deputy Prime Minister (ODPM) defined the purpose of the FSS as being:

• “To establish a clear and transparent fund-specific strategy which will identify how employers’ pension liabilities are best met going forward;
• to support the regulatory framework to maintain as nearly constant employer contribution rates as possible; and
• to take a prudent longer-term view of funding those liabilities.”

However, as CIPFA has noted in its guidance on the FSS, “there will be conflicting objectives which need to be balanced and reconciled”.  For example, for most employers objective a) implies low contribution rates, because they would see pension liabilities being “best met” by gaining as much help as possible from the investment strategy over the long term, which would lead you towards an equity-biased investment strategy.  By contrast, objectives b) and c) imply stability and prudence of employer contribution rates, which would lead you towards a bond biased investment strategy.

Therefore, the best that can be achieved is a sensible balance between low and stable in employer contributions over the long term, accepting that triennial valuations are likely to lead to greater volatility if higher equity investment strategies are in place.

Investment Goal

The Wiltshire Pension Fund’s investment objective is to achieve a relatively stable “real” return above the rate of inflation over the long term, in such a way as to minimise and stabilise the level of contributions required to be paid into the Fund by employer bodies in respect of both past and future service liabilities.

Investment Strategy

The Wiltshire Fund Pension Committee has put in place a strategy to achieve this goal through use of the following elements:

1. a relatively large allocation to equity investment to achieve higher returns; and
2. allocations to more diversified and less correlated asset classes such as bonds, property, hedge funds and income-based equity products to achieve stabilisation.
3. The achievement of some “alpha” (manager) returns independently of “beta” (market) returns, through currency, high alpha equity and hedge fund strategies.

All Local Government Pension Scheme (LGPS) funds have to produce, consult on and publish a Statement of Investment Principles (SIP) – the Wiltshire Fund’s SIP can be supplied upon request or viewed at www.wiltshirepensionfund.org.uk/investment-principles.

Investment Powers

These are set out in the Local Government Pension Scheme (Management and Investment of Funds) Regulations, which provide wide investment powers, subject to certain restrictions. These regulations were amended in 2003 to allow investment committees to increase their Fund’s exposure to certain type of investments – but only where proper advice has been obtained. The current limits are as follows:

• No more than 10% deposited with a single bank (other than the National Savings Bank).
• No more than 15% invested in unlisted securities.
• No more than 10% in a single holding (except unit trusts).
• No more than 35% in unit trusts or other collective investment schemes managed by any one body.
• No more than 35% in a single insurance contract.

Regulations further state that administering authorities must obtain and consider proper advice on their investments, and formulate their investment policy with a view to:

• the advisability of investing fund money in a wide variety of investments;
• the suitability of particular investments and types of investments; and
• the extent to which the administering authority complies with the ten CIPFA Pensions Panel Principles for Investment Decision Making in the Local Government Pension Scheme in the United Kingdom, which followed Paul Myners' review of institutional investment; this must be explicitly stated.

Strategic asset allocation

The Fund is invested 52.5% in Equities, 17.5% in Bonds, 13% in Property and 17% in Alternatives. However, of the Alternatives, around 13% are equity based (in either Long-Short or Income Yield biased products), so this equates to an effective equity allocation of over 65%. More details are given in the section below summarising the Fund’s investment management arrangements.

Risk control

The Committee believes that risk control is primarily achieved by the Fund’s strategic asset allocation, and this has been taken into account in setting its overall investment strategy.

Corporate Governance

The Council seeks to use its position as a shareholder to actively encourage good corporate governance practice in those companies in which it invests. It does this by subscribing to the Pensions & Investment Research Consultants Limited (PIRC) Corporate Governance Service and requires its direct equity managers to follow PIRC voting recommendations in the UK.

It is also a member of the Local Authorities Pension Fund Forum (LAPFF), to enable it to act collectively with other local authorities on corporate governance issues.

Socially Responsible Investment

The Committee expects its investment managers, to take account of social, environmental and ethical considerations in the selection, retention and realisation of investments insofar as these matters are regarded as impacting on the current and future valuations of individual investments. Taking account of such considerations is seen as forming part of the investment managers’ normal fiduciary duty.

As such, the Committee also believes it has a commitment to ensuring that companies in which it invests adopt a responsible attitude toward the environment, and adopt high ethical standards. Generally, such companies are expected to behave in a socially responsible manner by taking account of the interests of all stakeholders.

The Committee seeks to achieve this objective by raising issues with companies in which it invests with a view to raising standards in a way that is consistent with long term shareholder value. Again, the County Council primarily uses its membership of LAPFF to effect this policy.

Investment management arrangements

The Fund's current asset allocation is:

The current allocation of mandates to managers is:

If you need any further information please feel free to contact us

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