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PPF tells trustees not to copy its derivatives strategy

The Pension Protection Fund plans to diversify its investment portfolio and improve its returns through the use of derivatives.

Its latest statement of investment principles reveals a marked shift away from the current 100 per cent bond investment strategy to include equities and property.

It plans to hold 50 per cent in global bonds, 20 per cent in cash, 12.5 per cent in UK equities, 7.5 per cent in global equities and 7.5 per cent in property. A derivative-based currency overlay will comprise the remaining 2.5 per cent.

The PPF aims to achieve 1.4 per cent above its composite benchmark.

But the move has raised concerns that solvent trustees will emulate the PPF strategy rather than tailoring their investment to cover their own liabilities.

The PPF has urged trustees not to follow its strategy but pensions adviser Ros Altmann believes The Pensions Regulator must step in to drive the message home to trustees.

She says: “Trustees should take on board the overall message of the need to protect the downside but this asset allocation is not appropriate for most trustees to adopt as the PPF liability profile is very different from that of a typical pension fund.

“One concern is this strategy will rely on enhanced indexation. That seems sub-optimal and may entail more risk. It might be more effic- ient to use a passive core of indexed funds plus long-short or absolute return managers to add manager skill returns.”


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