The Trustee's Beliefs


Investment Beliefs


1. Valuation is an important driver of investment performance over the medium to long-term.

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2. Risk is multi-faceted and not fully quantifiable, but must be managed.

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3. Diversifying portfolios improves investment efficiency.

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4. Environmental, social and governance factors materially impact long-term investment returns and must be taken into account.

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5. Costs can significantly reduce returns and therefore must be accounted for in all investment decisions.

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Scheme Beliefs


1. Strong governance, leadership and culture are essential requirements for a world-leading investor of pension assets.

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2. Clear investment objectives and accountabilities improve the likelihood of achieving superior net returns allowing for risk.

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3. Alignment of interests across members, employers and all other stakeholders improves the prospects of achieving the Trustee’s investment objectives.

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4. A long-term investment horizon is consistent with our liabilities and is a competitive advantage.

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5. Multi-asset funds are the most appropriate vehicles for Sections and the DC funds.

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Valuation is an important driver of investment performance over the medium to long-term.

1. The price at which an asset is purchased has a significant impact on its return.

2. Markets are not perfectly priced and therefore investing when assets seem to be attractively valued can lead to superior investment performance.

3. We recognise that valuation is rarely the dominant return driver in the short-term and therefore we review strategic asset allocation annually with a medium-term view. However, it is important to identify significant dislocations in markets between strategic reviews.

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Risk is multi‐faceted and not fully quantifiable, but must be managed.

1. Risk management is not an exact science. We combine informed judgment with quantitative analysis.

2. Risks must be embraced in order to generate returns. We seek to increase risk when appropriately compensated and to mitigate unrewarded risk as part of a counter-cyclical investment style.

3. It is important to plan for “bad times”. By managing risk effectively before and during challenging conditions our long-term perspective can be utilised to our advantage.

4. In addition to market risk we monitor and manage other risks such as liquidity, counterparty, credit and legal risk.

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Diversifying portfolios improves investment efficiency.

1. Asset classes contain a variety of risk premia and it is important to decompose them accordingly and identify associated return drivers. Diversification across different risk premia can lower overall risk without reducing expected returns.

2. Financial leverage is a useful tool when markets offer compelling diversification opportunities.

3. Analysis of risk and return contributions are important for sizing exposures and building portfolios that deliver the most suitable risk-return trade off.

4. In investment the risk of complexity is high and should be limited within an investment process. Investment strategies should only be implemented if they are fully understood and have the potential to improve meaningfully either investment efficiency or risk-adjusted returns.

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Environmental, social and governance factors materially impact long-term investment returns and must be taken into account.

1. Integration of environmental, social and governance factors improves investment decisions in the long-term.

2. Active ownership empowers investors to influence corporate behaviour and benefit from sustainable business practices.

3. Long-term themes expose our portfolios to substantial risks and opportunities which cannot be fully quantified but should be managed.

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Costs can significantly reduce returns and therefore must be accounted for in all investment decisions.

1. Hidden costs of investment go significantly beyond quoted headline fees. We disaggregate costs and take all into account when assessing expected returns.

2. We apply strict standards to fee structures in terms of transparency and quantum. We use our leadership role in this field to drive positive change in the industry.

3. We will use internal resources where it makes sense from either a cost or control perspective. We recognise it is often necessary or more cost efficient to utilise external expertise.

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Strong governance, leadership and culture are essential requirements for a world-leading investor of pension assets.

1. An effective governance structure has clear goals, authorities and accountabilities for all participants in the investment process. Lack of organisational clarity can result in poor decision making.

2. Investment choices are rarely straightforward. Fully engaged leadership is required to balance multiple inputs and to make difficult but necessary decisions.

3. A healthy culture attracts and empowers high quality individuals and encourages behaviours that are consistent with our investment beliefs. Investment businesses with weak cultures are ineffective over the long-term.

4. Being a world-leading investor demands a leadership role in the wider industry – both as an asset owner and as an investment manager.

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Clear investment objectives and accountabilities improve the likelihood of achieving superior net returns allowing for risk.

1. Investment objectives must be justified and realistic. The behavioural consequences of any target must be actively examined and understood.

2. Section-specific characteristics such as an employers’ covenant and the nature of liabilities are analysed and taken into account. A rigorous return, risk and liquidity framework is required when setting investment strategy for each Pooled Fund and Section.

3. The Scheme’s Growth Fund is measured against both a long-term real return aspiration (RPI + 4%) and a market-based Reference Portfolio in order to balance what is required over the long run and what can be better controlled over shorter periods. All the multi-asset Funds have long-term real return targets.

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Alignment of interests across members, employers and all other stakeholders improves the prospects of achieving the Trustee's investment objectives.

1. The investment industry is plagued with agency issues, conflicts and perverse incentives. It is important to maximise the alignment of interests across all stakeholders around the Trustee’s objectives.

2. Our preferred partners are exceptional organisations that are principled and have high ethical standards. To maximise effectiveness we prefer a relatively small number of key relationships.

3. People respond to incentives. Therefore our reward structure is competitive and designed to motivate our staff to achieve the Scheme’s long‐term objectives.

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A long‐term investment horizon is consistent with our liabilities and is a competitive advantage.

1. The long-term nature of the Scheme allows us to embrace risk in order to generate returns.

2. Our long-term time horizon enables us to withstand significant short term losses in order to produce high long term real returns.

3. We believe illiquid investments must offer a compensatory excess return over liquid equivalents. As a long‐term investor we seek to exploit the illiquidity risk premium.

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Multi-asset funds are the most appropriate vehicles for Sections and the DC Funds.

1. A multi‐asset approach to investing reflects the importance of asset allocation to Scheme investment returns and ensures the widest possible opportunity set.

2. The multi-asset Pooled Fund range should be as simple as possible. It should accommodate the full range of Section’s investment requirements but through a small number of Funds.

3. Where appropriate, DC members should be able to access similar quality investment options to those available to Sections, subject to cost and liquidity considerations.

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