The Pera International Staff Pension and Life Assurance Scheme

The Pera International Staff Pension and Life Assurance Scheme

Statement of Investment Principles (“SIP”)

Purpose of this Statement

This SIP has been prepared by the Trustees of The Pera International Staff Pension and Life Assurance Scheme (the “Scheme”). This statement sets out the principles governing the Trustee’s decisions to invest the assets of the Scheme.

The Trustee has also taken the Myners’ Principles into consideration when making decisions about the Scheme’s investment arrangements.

Investment objectives

The Trustee invests the assets of the Scheme with the aim of ensuring that all members’ accrued benefits can be paid.

The Scheme’s funding target is specified in the Statement of Funding Principles. The Trustee and sponsoring company have a secondary objective of a full buy-out of the liabilities.

The Scheme’s funding position will be reviewed on an ongoing basis to assess the position relative to the funding target and whether the investment arrangements remain appropriate to the Scheme’s circumstances.

Investment strategy

The Scheme’s investment strategy was derived following careful consideration of the nature and duration of the Scheme’s liabilities, the risks of investing in the various asset classes, the implications of the strategy (under various scenarios) for the  level of contributions required to fund the Scheme, and also the strength ofthe sponsoring company’s covenant. The Trustee considered the merits of a range of asset classes, including various “alternative assets”.

The Trustee recognises that the investment strategy is subject to risk, in particular the risk of a mismatch between the performance of the assets and the calculated value of the liabilities. The risk is managed by the capital-backed framework agreement in place between the Trustee, the sponsoring company and the Investor (Portunes Capital Limited).

The Trustee have also considered a number of other risks set out in Appendix A.

Responsible Investment and Corporate Governance

The Trustee believes that good stewardship and environmental, social and governance (“ESG”) issues may have a financially material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustee also recognises that long-term sustainability issues, particularly climate change, present risks and potential opportunities that increasingly may require explicit consideration. However, given the Trustee’s investment objectives and desire to secure member benefits in the short-term, it is expected that ESG risks are relevant to the Scheme and could impact the portfolio in the short term, most likely through individual asset holdings, but there may be more limited scope for medium-to-longer term ESG themes to potentially unfold.

The Trustee has given the appointed investment managers full discretion when evaluating ESG issues, including climate change considerations, and exercising voting rights and stewardship obligations attached to the Scheme’s investments. We expect managers to have integrated ESG into their risk analysis and investment process. Similarly, the Scheme’s voting rights are exercised by its investment managers in accordance with their own corporate governance policies, and taking account of current best practice including the UK Corporate Governance Code and the UK Stewardship Code.

The Scheme’s investment advisors will keep the Trustee informed on ESG issues. The Trustee considers how ESG, climate change and stewardship  is  integrated  within  investment processes in appointing new managers and the Trustees also monitors its existing managers’ ESG approach on a periodic basis, and discusses ESG considerations as part of ongoing reviews.

Non-financial matters (as defined in the Regulations) are not taken into account when determining the Scheme’s investment policy. Member views are not actively sought but the Trustee regularly updates members via newsletters and by making a copy of the Statement of Investment Principles available on request.

Investment Management Arrangements

The Trustee invests in an investment vehicle run by Nova GP Limited.

The day to day management of the underlying assets has been delegated to Cheyne Capital Management. The investment managers are regulated under the Financial Services and Markets Act 2000.

The investment objectives of the vehicle are:

  • To ensure a high probability of removing the deficit on a buy-out basis in 6 to 8 years.
  • To provide liquidity to finance the scheme’s liabilities throughout, as well as buy-out in 6 to 8 years.
  • To hedge against long-term interest rate and inflation movements.

The fund manager will use gilts, swaps and futures to efficiently hedge the interest rate and inflation risks. They will issue Credit Default Swaps in order to produce the returns required over the next 6 to 8 years.

Relationship with the Investment Manager

All decisions about the day-to-day management of the assets have been delegated to the investment managers via a written agreement. The delegation includes decisions about:

  • Realisation of investments;
  • ESG considerations in selection, retention and realisation of investments, as outlined above;
  • The exercise of any rights (including voting rights) attaching to the investments.

The Trustee takes investment managers’ policies into account when selecting and monitoring managers. The Trustee also takes into account the performance targets the investment managers are evaluated on. The investment managers are expected to exercise their powers of investment with a view to giving effect to the principles contained  within this statement,  so far as reasonably practicable.

The investment management fees for the 6 to 8 year period of the framework agreement are met by the Investor as is the procurement of quarterly reporting of investment performance under the framework agreement..

Given the size of the Scheme’s investment it would not be cost effective to monitor the turnover or turnover costs directly. The performance figures that the Trustee and their investment consultant analyse are net of transactions costs, so this is taken into account indirectly.

The Trustee does not believe that they should micro-manage the level of turnover provided that the net outcome to the Scheme is acceptable.

The time horizon of this arrangement matches the Trustees’ goal of achieving buy-out in 6 to 8 years.

There are three levels of oversight for the investments:

  • Level 1 – Day to day oversight of the portfolio, and proactive management of the key risks above, e.g. managing rates and inflation exposures, ongoing credit screening and other management activities to mitigate default risks. This would be conducted by Cheyne Capital Management.
  • Level 2 – Regular review (e.g. no less frequently than quarterly) of the performance of vehicle assets and key risk metrics, conducted by Nova GP Limited.
  • Level 3 – Regular review (e.g. no less frequently than quarterly) of the performance of the Trustee’s interests (i.e. progress against the Journey Plan and any required top up from the Investor), conducted by the Investor with support from their advisers and shared with the Trustee and sponsoring company.

The Scheme’s assets are invested in vehicles in which the custody of the holdings is arranged by the investment manager.

Employer-related investments

The policy of the Trustee is not to hold any employer-related investments as defined in the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005 except where the Scheme invests in collective investment schemes that may hold employer­ related investments. In this case, the total exposure to employer-related investments will not exceed 5% of the Scheme’s total value. The Trustee will monitor this on an ongoing basis to ensure compliance.

Direct investments

Direct investments, as defined by the Pensions Act 1995, are products purchased without delegation to an investment manager through a written cont ract . When selecting and reviewing any direct investments, the Trustee will obtain appropriate written advice  from their investment advisors.

Governance

The Trustee of the Scheme makes all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers.

When making such decisions, and when appropriate, the Trustee takes proper written advice. The Trustee’s investment advisors are qualified by their ability in and practical experience of financial matters, and have the appropriate knowledge and experience. The investment advisor’s remuneration may be a fixed fee or based on time worked, as negotiated by the Trustee in the interests of obtaining best value for the Scheme.

Compliance

This Statement has been prepared in compliance with the Pensions Act 1995, the Pensions Act 2004, and the Occupational Pension Schemes (Investment) Regulations 2005. Before finalising or subsequently revising this Statement, the Trustee will consult the sponsoring company and the Investor and appropriate written advice will be sought. The Statement is reviewed at least every three years, and without delay after any significant change in the investment arrangements.

Signed for and on behalf of 20-20 Trustees Limited on 30 July 2020

Appendix A – Risks

A non-exhaustive list of risks that the Trustee has taken into consideration and sought to manage, where appropriate, is shown below;

Interest rate risk

  • The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in interest rates.

Inflation risk

  • The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in inflation.

Liquidity risk

  • Difficulties in raising sufficient cash when needed without adversely impacting fair market value of the investment.

Currency risk

  • The potential for adverse currency movements to have an impact on the Scheme’s investments.

Longevity risk

  • Members of the Scheme living longer than expected, leading to a larger than expected liability.

Credit risk

  • Default on payments due as part of a financial security contract.

Counterparty risk

  • A counterparty fails to meet its financial transaction obligations.

Concentration risk

  • Excessive exposure to a single issue/stock/sector etc. which has a potentially disproportionate impact on the Scheme’s investments.

Reinvestment risk

  • Proceeds from the payment of principal and interest which may be reinvested at a lower rate than the original investment.