Further PPF in-sourcing to focus on ‘buy and hold’ assets

Future internal management of assets by the UK’s Pension Protection Fund (PPF) is likely to focus on buy-and-hold assets, after an initial effort to build a team responsible for hedging.

The £23.4bn (€29.7bn) lifeboat fund, which saw its funding level increase last year despite a significant decline in investment returns, is building its in-house liability-driven investment (LDI) team after it hired Trevor Welsh as its head of LDI.

Andy McKinnon, the fund’s CFO, told IPE internal staff numbers would increase by half a dozen by the end of the year – with some employees working directly on investment, while others work in control and investment operation functions.

McKinnon emphasised that the decision to build up in-house expertise was not driven by a desire to reduce costs, and that it would not be expanding in-house management across its entire portfolio.

“There are some other asset classes where it simply wouldn’t be sensible for us to set up a large operation,” he added.

“If you were thinking about private equity, or public equity, there are lots of firms that do that, and, with quite a diverse investment portfolio, it would probably be appropriate to continue to put that externally.”

However, McKinnon indicated that asset classes or strategies with a lower turnover could be managed internally.

“The kind of assets where it’s more buy-and-hold-type propositions, and we’ll be investing in those kind of things for a long time,” he said. “Over time, we’ll expand the operation.”

Asked whether this could mean an internal real estate or infrastructure team being hired in future, he said: “We don’t have any firm plans for that, but certainly we’ll expand past LDI.”

The PPF has repeatedly spoken of its desire to grow in-house management, with CIO Barry Kenneth last year saying it was due to a desire to better control the portfolio.

He told IPE last July: “We know our framework better than anyone else, so, by definition, we should be able to manage it, knowing everything else within the fund, and do so in a more controlled fashion.”