UK pensions lifeboat fund to expand portfolio insourcing

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The UK’s Pension Protection Fund (PPF) is planning to bring its private and public market credit portfolio in house within the next three years, and may do the same for its passive currency hedging.

Announcing its three-year strategic plan, the £23.4bn (€29.8bn) fund also estimated growing its assets under management by more than a third by 2020, to reach £32bn.

As part of its longer-term plan to be financially self-sufficient by 2030, the PPF has been gradually bringing more of its asset management capabilities inhouse. This has reduced its reliance on external managers and increased the level of flexibility and control the fund has over its investments. It has now completed the first two phases of this process, it said.

Last year the PPF brought part of its liability-driven investment (LDI) portfolio in house, following the appointment of Trevor Welsh as head of LDI in August 2015. Once this has been embedded, the PPF plans to transfer its private and public market credit portfolio to the in-house team.

The fund will then explore the possibility of insourcing passive currency hedging, it said.

Over the next three years, the PPF said it would design and implement a new investment risk management framework that “ensures that we adopt and maintain best practice for the next stages of investment insourcing”.

Other risk management steps on its agenda include refining and embedding a new scenario and stress test framework for operational and financial risk, and making sure it is on top of cybersecurity and fraud risks.

Alan Rubenstein, PPF chief executive, said the fund’s operating environment contained many uncertainties but that it had “a good understanding of our risks and mitigate them where they are within our control”.

“However, the future performance of the UK and global economies, and the volatile funding levels among the schemes we protect, pose particular risks. Nevertheless, we are confident that our funding strategy puts us in a good position to face the future,” Rubenstein said.

The fund said it will ensure it had “the correct asset allocation” in place before the introduction of mandatory clearing for over-the-counter derivatives in 2018, under the European Markets Infrastructure Regulation.

Publication of the PPF’s strategic plan was delayed because of so-called purdah rules, limiting public bodies’ communications in the run-up to last week’s general election.