- The combined assets of the Top 100 schemes have risen above £1trn for the first time
- The shift away from return-seeking assets is continuing
- Exposure to alternatives and ESG has also continued to rise
This year's Top 100 scheme survey finds assets of the country's biggest pension funds have reached record highs. Neil Blain analyses the data
Professional Pensions has once again teamed up with Pension Funds Online to bring you a listing of the Top 100 UK Pension Schemes, using data researched in November 2017.
The £1trn club
The most noticeable and headline-grabbing finding of the data is that the combined value of assets of the largest 100 UK schemes has risen above £1trn, a significant leap from the combined assets of £860bn in last year's survey. To put this figure in context, it is higher than the combined assets of all the remaining UK pension schemes that we list on Pension Funds Online.
Of the 73 schemes that provided membership data, 41 have less than 20% of their membership listed as active. In fact - aside from some exceptions such as the New Airways Pension and Jaguar Land Rover schemes - the list of funds with an active membership base higher than 20% was made up almost entirely of the 22 local authority schemes that feature in the survey.
Asset allocation trends
This decline in active membership in the aging defined benefit schemes is having a noticeable effect on asset allocation trends. The breakdown of scheme assets demonstrates the continued shift that UK funds are making away from return-seeking assets and towards risk averse, liability-matching assets in a bid to reach a fully-funded position as part of a controlled recovery plan.
Equity allocations have shrunk from 29% of scheme assets in 2014 to just over 26% of scheme assets in 2017, whereas bond allocations have grown from 35% to nearly 39% of scheme assets over the same period, accompanied by a similar growth in direct liability‑driven investment strategies (see full table in supplement). The only section of the dataset that does not conform to this trend is again the local authority schemes, with their large active memberships, which still invest more than half their portfolios in equities.
This trend is most effectively demonstrated by the two British Airways pension funds, the longstanding Airways Pension Scheme (APS) and the more recent New Airways Pension Scheme (NAPS).
While the APS has been closed to new members since 1984 and has a very low base of 1.7% active members it can continue to pursue a liability- matching agenda, dropping equity investments to below 10% of scheme assets, and proposing in its annual report "linear de risking in annual steps of 2.5% from return-seeking assets to achieve 100% matching gilts by March 2023".
Meanwhile the NAPS is a relatively much younger scheme, which closed to new members in 2003, where nearly a third of the membership base is still active. As a result, return-seeking allocations form at least half of the scheme's portfolio, although the trustees have declared the intention "to move the weighting from return-seeking assets towards liability-matching assets" over time.
As well as bonds, exposure to alternatives has also continued to increase as the funds progress the diversification of their portfolios. Environmental, social and governance investments have also featured in many investment strategies, such as the BBC employing Greencoat Capital to source and manage a portfolio of UK solar investments.
In recent years UK pension schemes have been under increased pressure to reduce costs, and there have been noticeable reductions in investment management fees, such as the BT Pension Scheme, which has reduced fees from 0.40% of scheme assets in 2015 to 0.19% of scheme assets in 2017. Additionally, the local authority schemes are undergoing a process of pooling assets as a fee reducing exercise, the results of which the private sector schemes will inevitably pay attention to.
To gauge the provider activity of the largest 100 schemes we have also included league tables of the different companies they employ to run and advise their funds, based on the number of appointments each has (see full tables in supplement).
The top investment managers by number of appointments were, once again, Legal & General Investment Management and BlackRock.
The most appointed actuarial advisers were Willis Towers Watson, Aon Hewitt and Hymans Robertson; the investment advisers with the largest number of top 100 scheme appointments were Willis Towers Watson and Mercer.
Sackers & Partners and Linklaters lead the legal advisory league table, while Northern Trust and BNY Mellon topped the custodian rankings.
Neil Blain is managing editor of Pension Funds Online