The Superannuation Arrangements of the University of London (SAUL) is the pension scheme for non-academic staff of the Universities of London and Kent. During the past decade, the scheme, which at the end of March had a market value of £946.3m (e1.5bn), has undergone a complete restructuring of its approach to investment that has resulted in a successful framework to provide added value to the fund.
Until 1991, SAUL followed a relatively ‘standard’ approach to investment consisting of a balanced mandate and some exposure to property unit trusts and direct venture capital holdings.
After a period of poor investment returns, an in-depth review of the scheme’s investment strategy was undertaken and, as a result, the trustees agreed on the need to make changes in terms of asset management. The first decision was allocated taking into account only two asset classes, equities and bonds, which will account for 90% and 10% of total assets respectively – moving away from the traditional balanced mandate strategy. At the same time, the scheme’s trustees decided to liquidate property and venture capital holdings when possible.
For the equity portion of the portfolio, 70% of assets were invested in the UK and the remaining overseas equities split equally between US, Europe and the Pacific Rim including Japan, with a total of 1% of equity assets being allocated to emerging markets. The changes in asset allocation resulted in the creation of a specific benchmark and the adoption of a core/satellite approach with 60% of the assets being invested on a passive basis.
In 1997, and six years after this first review took place, the introduction of the minimum funding requirement (MFR), prompted a new revision of the scheme’s approach to investment. As a consequence, the allocation to equities was reduced to 80% of total assets, with the remaining 20% invested in bonds.
Also, and following recommendations based on analysis of various markets efficiencies, the decision was taken to reduce the exposure to passive management in the different assets classes. As a result, half of the Pacific Rim, including the Japan portfolio, moved from passive to specialist active management in 1998. Two years later, the remaining assets passively invested in this region were also moved to active management. The whole European equity portfolio became active in 1999 and one quarter of the fixed income investments were also moved to active management a year later.
Further reviews, where the trustees conducted their work alongside investment consultants, were considered necessary to expand the fixed income mandate from gilts to only include corporate bonds.
At the same time, exposure to overseas equities was increased to 35% of the equity portfolio, mainly focusing on Europe. Given the element of over-weighting Europe against the overseas regions, a decision was made to provide a measure of protection. This was to be done by moving some of this portfolio back into passive management using a Europe excluding UK fund.
Currently, the fund uses five asset managers. These are Legal & General (passive), Merrill Lynch, Wellington, Capital International and Rothschild.
The investment decision-making on a strategic basis is taken by the SAUL’s investment committee which comprises a mix of trustee and investment professional expertise, although day-to-day investment decisions are taken by the portfolio managers.
In order to allow the trustees to monitor their work, the managers provide quarterly reports and meet with the investment committee every six months – once a year for the passive manager. In case of underperformance, managers are placed ‘on probation’ and asked to meet the committee on a quarterly basis until the performance is improved or a decision is taken to review the appointment. SAUL finds this process more cost effective than automatically incurring the expense of changing a poor performing manager.
Although many of the fund’s objectives in terms of its new approach to investment have already been achieved, the future will bring further challenges for those involved in developing the scheme’s strategies. Issues related to corporate governance and shareholder activism, restructuring of management fees, and the design of a stronger SIP (statement of investment principles) that could include projected investment returns and defined fee structures, will all be part of the fund’s priorities in the near future.
For the time being, and looking back over the last decade, the steps taken by the fund to improve and adapt to current market conditions throughtout its investment structure, have been significant. Consistent investment progress, improved transparency and reporting, defined specific benchmarks and focus on performance measurement, are some of the issues that have helped the fund to position itself among the leading pension schemes in the UK. Further reforms and consolidation of what has already been done could secure this position during the years to come.

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