How USS sees itself and how others see it.
I have just read an article that relates the views of Simon Pilcher on the success of USS’ investment strategy in the 12 months to September 2022.
The Universities Superannuation Scheme, USS, trustees of the largest private pension scheme in the UK, withstood September’s turmoil in the government bond market for five key reasons. Speaking at USS’s 2022 Institutions’ Meeting, Simon Pilcher, chief executive of USS Investment Management, said the asset manager uses less leverage than most other UK pension funds.
The five key reasons for USS’s success are then expanded on
At end of September, the Valuation Investment Strategy had 16 per cent in leverage.
Pilcher said USS has also been protected because of diversification. In an important seam to strategy, USS buys US government bonds to hedge inflation and interest rate risk, no relying exclusively on UK government bonds. In a third pillar, the asset manager was also supported by its allocation to private markets which protected the downside and have less volatility than public markets.
A strategy that reduced the portfolio’s exposure to sterling also helped protect the pension fund. The investment team had observed for a while that sterling tends to perform badly in volatile markets. Fearing volatility, strategy centred around increasing the non-UK element of the portfolio, said Pilcher, adding that the team had also ensured plentiful stocks of cash and collateral in preparation for market volatility as yields rose through the year. When this was turbo charged in September, the scheme was prepared.
Finally, Pilcher credited USS’s governance for the scheme’s fortitude during September’s market turmoil. This enabled the investment team to act quickly at a time fast decision-making was critical to protect the downside and exploit opportunities.
I have also read this in the Mail on Sunday, which is reporting on the fund’s performance over that period
The value of Britain’s biggest pension fund has plunged by £20 billion, more than a fifth of its entire value, after turmoil in financial markets pummelled its investments.
The Universities Superannuation Scheme (USS) looks after the pensions of 460,000 higher education workers, past and present.
It is one of few remaining defined benefit (DB) schemes still open to new joiners – paying a pension based on a member’s final salary.
Continuing to my theme that value for money is based on outcomes rather than qualitative assessments, I am inclined towards the latter .
Latest figures from the USS show its assets plunged from £92.2 billion to £72.6 billion in the nine months to the end of September – the biggest fall in absolute terms reported so far by any workplace pension scheme.
It seems bonkers that a successful investment strategy can deliver such staggering losses.
We are told that at end of September, the (USS) Valuation Investment Strategy had 16 per cent in leverage.
No doubt we will be reminded that liabilities fell faster than assets but if the liabilities were only 16% leveraged why did the assets take such a hit – if all the collateral was in place, then where was the write-down from the “fire-sale”?
People have poured scorn on Iain Clacher and Con Keating’s estimate of a £500 bn drain in the value of UK’s DB asset value, but if one scheme of the 5200 in the PPF’s Purple Book can deliver a nearly £20bn asset fall, that number sounds reasonable.
If , as is reported of Simon Pilcher , your remuneration is over £2m per year, you have to work hard to justify your job’s value. But surely members of USS are going to ask how things went so well and so badly at the same time?