Jennifer Devine, head of the Wiltshire Pension Fund: “We are interested in real world change, not just making ourselves look squeaky clean.”

18 Jul 2023

The head of the Wiltshire Pension Fund tells Andrew Holt about private assets, building net-zero portfolios, looking to the future and trying to keep one step ahead of the government.

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The head of the Wiltshire Pension Fund tells Andrew Holt about private assets, building net-zero portfolios, looking to the future and trying to keep one step ahead of the government.

What’s in your portfolio?

We are just over £3bn in assets and are pretty well funded. In the 2022 valuation, we came out at just over 100%. With gilt yields going up last year, our liabilities have come down and we are now around 120% funded. We are in quite a strong position at the moment.

We are in a phase of consolidation. In the three years prior to this, we introduced private markets for the first time. We have had property for a long time, but we have introduced private equity and private debt. They were new asset classes for us and we have been building them up slowly. They deliver similar risk-return characteristics.

We also have active equities through a balanced style portfolio and a sustainable one. We made the sustainable allocation off the back of our climate scenario modeling that showed it would give us better returns. But it is growth orientated, so we have not put all of our active equities into it. We just went for a 50/50 split. We have Paris-aligned passive equities as well, which is quite exciting. That’s aligned to a benchmark we developed with our pool, Brunel Pension Partnership.

We also hold some emerging market exposure. Emerging markets have quite a high carbon footprint and we could divest from that, but we are not willing to. We want to stay invested in these areas because we are interested in real world change, not just making ourselves look squeaky clean.

Our multi-asset portfolio holds equities and debt. We have, as I mentioned private equity and a dedicated allocation to renewable infrastructure and climate solutions, which we are going to build up over the next year or so. We also have multi-asset credit, lots of property and private debt. Then we have a little bit in gilts and an allocation to affordable housing. So we have a dual mandate of delivering returns and making positive social and environmental impacts.

Why have you introduced the new asset classes to the portfolio?

The private markets are there to boost returns, but also to diversify.

How would you describe your investment strategy?

It is diversified and quite progressive. It has a lot of things in there that are looking to the future. We have a goal of having 30% of the portfolio allocated to sustainable or low carbon assets by 2030. And we are almost there. It’s 28.2% at the moment.

The value of your fund has increased. What do you attribute that to?

 It depends what period you are looking at. We are reporting annual accounts to the end of March now and we actually saw a bit of a dip during that year. It’s been quite challenging. If you look back over the past four years, we were slightly in excess of the expected actuarial investment return. A lot of that was driven by having good exposure to growth stocks and particularly some tech stocks, which benefited from the work from home trend.

In general, obviously less so over the past year, growth has done well historically and we have been overweight to it. But I would put it down to being well diversified. We do not tend to chop and change; we just strategically think where we want to be and sit there.

You have set a goal to reach net zero by 2050. How’s that going?

When we set that goal, it was as a result of the modeling that showed the fund would be in a better financial position in a sub 2-degree warming scenario. That’s why we set the goal. It was financially motivated.

We looked at a goal of net zero by 2030, but you just cannot get the investments to get to net zero by then and still get the returns. So we set 2050. We thought we’d align it with what the UK is trying to do overall and with the Paris Agreement. We are broadly on track.

We started o looking at our equity portfolios but have expanded it as the target applies to the whole portfolio. For our equities, we can look at the carbon footprint, the weighted average carbon intensity. In the other parts, like, for example, our property funds, we will look at the underlying funds and ask whether they have set net-zero targets for 2050 or sooner. In some ways we are tackling it directly through our allocation to renewable infrastructure and climate solutions.

We are setting engagement targets as well. We use consultants for this. They give us some analysis of what is in our portfolio and which investments are aligned, which are not and which are the heaviest emitters. Sometimes you don’t just want to sell the heaviest emitter. It depends whether they have a chance to decarbonise and if they are going to change.

We want to be financing that to make that change happen. It requires quite a lot of in-depth looking at things from the bottom up. We have set the top-down target, but then we are looking into individual stocks and asking: “Why is that in the portfolio? Are we happy with it?”

We have a dual mandate of delivering returns and making positive social and environmental impacts.

You produce a stewardship report. What does that contain and why is it important?

The point of the report is firstly to share information on what we are doing in this area. But it is also in-line with the Stewardship Code’s reporting requirements. We have to submit this annually to the Financial Reporting Council in order to maintain our signatory status of the Stewardship Code.

 If you have read the whole report, they are chunky. So what we do is make a mini magazine to go alongside it, which tries to explain, in an easy to read way, why we do what we do.

What do you see as your big challenges on the economic front and how will these shape your investment strategy?

 Inflation is the big issue. We are going to have to re-run the modeling to see if we are cashflow positive or negative. This is super important to us as a pension fund because it can impact the strategy. We have a lot of money tied up in private markets.

There have been issues with some pension funds wanting to exit the pooling system. Do you understand why?

I don’t know the details of it, but I believe they have not transitioned any assets into the pool. So maybe they were just looking at their options. But for us, we have more than 70% of the fund in the pool.

There is absolutely no way we would consider anything like that. We are fully committed to pooling. It’s certainly not some- thing on our radar, even remotely.

So you have no problem with the government setting a deadline for the total pooling of your assets?

I guess they want to push some of the funds who haven’t pooled any of their assets. In a way, it feels like a level of instruction we don’t need. We are all getting on with it and trying to do what was intended. So maybe they should just leave us alone to carry on and do that in the best way for our funds rather than mandate deadlines.

What do you make of the government wanting pension funds to invest in line with their growth agenda, such as in infrastructure?

This has raised its head again and again over the years. They don’t want to tell us what to invest in, and they can’t unless they change the regulations. But we would be delighted to invest in UK infrastructure, but it has to give us the returns. That’s the point. They somehow have to facilitate decent return opportunities for us to do so. Otherwise, that’s going to compromise our investment strategies and end up being a bit of an own goal in the long run.

What do you see as being the biggest challenges for your fund?

The climate stuff is only going to get bigger and more intensive. Everybody is talking about biodiversity as well, yet I feel the industry is struggling to find its feet in terms of what that means from a practical perspective. That is going to be tough to get to grips with.

There is a lot of stuff we are expecting to come out from government and it’s waiting to see what that is. Sitting around in the short term and not being able to make decisions or waiting for all these consultations to land, but still trying to be prepared for them is quite challenging.

I feel like we have tried our absolute best to get ahead on a lot of these things, especially the climate stuff, like we have been doing with Task Force on Climate-related Financial Disclosures reporting. We are trying to get ahead of it.

And what about your own biggest personal challenge?

I used to just work on the investments, but about 18 months ago I took over responsibility for the whole fund, including the administration. A lot of local government pension schemes have administration issues.

It can be done well and it should be done well. We can see how to get there but it can be di cult sometimes to get the skills in that you need. There are obviously challenges in the public sector with recruitment and things like that.

That is something the government has asked us to look at: coming up with workforce strategies and things associated with that. That’s been quite challenging. It was discussed at the recent LGPS conference. A lot of funds are experiencing issues with backlogs of work.

That is my big focus. Getting us on top of that and operating efficiently on the admin side. Then with the investments, focusing on continuing to build on what we are already doing and advancing our responsible investment agenda.