To provide suitable investment strategies for the differing employer requirements, the Fund currently operates four investment strategies. The strategies at 31 March 2024 are presented in the table below. The total fund strategy is simply a weighted average of the four individual strategies.
|
|
Main strategy |
Mature employer strategy |
50/50 Strategy |
Buses strategy |
Total Fund strategy |
|---|---|---|---|---|---|
|
Equities |
60.0% |
0.0% |
30.0% |
33.0% |
58.5% |
|
Real Assets |
20.0% |
0.0% |
10.0% |
11.0% |
19.5% |
|
Non-Gilt Debt |
10.0% |
0.0% |
5.0% |
5.5% |
9.7% |
|
LDI (formerly Gilts) |
10.0% |
100.0% |
55.0% |
50.5% |
12.3% |
|
Cash |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
|
Total |
100% |
100% |
100% |
100% |
100% |
More than 94% of employer liabilities are funded under the Main Strategy, which adopts a long-term investment strategy aiming to generate relatively high investment returns within reasonable and considered risk parameters and hence reduce the cost to the employer.
A small number of employers are funded in the Mature Employer Strategy, which invests in a portfolio of UK index-linked and nominal gilts to reduce funding level and contribution rate risk to a level appropriate to their circumstances. The liabilities funded by the Mature Employer Strategy represent less than 0.2% of total Lothian Pension Fund liabilities.
Just over 0.4% of liabilities are funded by the 50/50 Strategy, which is a combination of the above two strategies. The 50/50 Strategy is for employers who are closed to new members but who don’t yet qualify for the Mature Employer Strategy.
Finally, the Lothian Buses employer is funded with a combination of the Main and Mature Employer strategies in a proportion of 55/45. The liabilities associated with the Buses Strategy represent approximately 5.0% of Lothian Pension Fund liabilities.
The total fund strategy in the table above is the long-term target allocation to the five policy groups (or asset classes).
56.5% Equities
21.2% Real Assets
5.6% Non-Gilt Debt
14.0% Gilts
2.9% Cash
The Fund’s performance over the last year and over longer-term timeframes is shown in the table below.
|
1 year |
5 year |
10 years |
|
|
Lothian Pension Fund |
5.5 |
6.6 |
8.2 |
|
Benchmark* |
8.8 |
4.5 |
7.3 |
|
Average Weekly Earnings (AWE) |
5.9 |
5.4 |
4.0 |
|
Consumer Price Index (CPI) |
3.8 |
4.2 |
2.9 |
*Comprises equity, 'gilts plus' and gilts indices.
The investment objective of the Fund is to achieve a return on assets sufficient to meet the funding objectives over the long term as outlined in the Funding Strategy Statement. In effect, the Fund aims to generate adequate returns to pay promised pensions and to make the scheme affordable to employers now and in the future, while minimising the risk of having to increase contribution rates in the future.
This aim is translated into a strategic benchmark comprising a mix of assets, whose future returns are expected to approximate the required returns over the long term. The Fund is not expected to track the benchmark from year to year, but it does target a return broadly in line with its strategic benchmark allocation over the long term, with a lower-than-benchmark level of risk.
There are two main reasons why returns will deviate from the benchmark, particularly over shorter timeframes: portfolios aren't constructed to track listed market benchmarks, and private market benchmarks aren't readily available nor assets well suited to short term measurement.
The Fund’s performance over the last year and over longer-term timeframes is presented in the table above, both relative to the asset benchmark and with other relevant economic metrics. UK CPI and Average Weekly Earnings are both measures of inflation and Fund liabilities are, of course, linked to long term inflation. Both had grown at low and relatively stable rates for many years until the recently.
View the manager mandates at 31 March 2024 within the Annual Report 2024