Pension Protection Fund returns 25% due to hedging strategies

The Pension Protection Fund (PPF), a UK body that rescues imperilled pension schemes, achieved a 25% investment return in the year ending March 31.

The return of £1.7 billion (€2 billion) on its invested assets was added to levy collections of £600 million and the transfer of £2.5 billion from new pension schemes joining the fund, leaving the PPF with a little over £11 billion.

The fund says its major achievement in the year was limiting the damage of falling interest rates through a programme of interest rate and inflation hedging.

The PPF’s return-seeking assets generated a return of 2.1% over the year, or £337 million, which was above the fund’s Libor benchmark of 0.9%.

Despite the solid investment returns, the fund says the likelihood of it meeting its target to be financially self-sufficient by 2030 has fallen three percentage points to 84%.

“Foremost in our minds has been the continuing global financial crisis and the adverse effect it has had on the funding positions of UK pension schemes,” says chief executive Alan Rubenstein.

Rubenstein says the PPF’s funding level has fallen about four percentage points to 102% due to increased claims on the fund and warns that levies are likely to rise in the short term.

In October 2011, the fund recruited nine firms to its panel of transition managers, which help transition pension scheme assets into the fund. These were BlackRock, BNY Mellon, Citigroup, Credit Suisse, Goldman Sachs International, JP Morgan, Legal & General Investment Management, Morgan Stanley and Russell Investments.

The PPF also set up a liability-driven investment panel of four managers during the year, began the process of appointing specialist bond managers and sought to hire a panel of farm and timberland managers to handle future investments in these areas.

A list of the asset managers that handle the PPF’s portfolio is available on the fund’s website.

According to its annual statement, the PPF had £10.7 billion invested in debt instruments, £1.5 billion in equities and £1.6 billion in managed funds, as of March 31. The fund has smaller allocations to insurance policies, property, private equity and infrastructure. The fund’s total investment assets were £17 billion, but it also has investment liabilities of some £6 billion.

©2012 funds europe

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