The £1.9bn Superannuation Arrangements of the University of London (SAUL) pension plan has appointed Payden & Rygel to run an £80m absolute return bond mandate.
The global strategy will invest in high yield, emerging markets and mortgage-/asset-backed securities and aims to generate positive returns above cash.
SAUL chief executive Penny Green said: “Throughout our selection process Payden & Rygel’s robust yet pragmatic and solution-driven approach was clear. The Payden & Rygel team was able to demonstrate excellent market and economic knowledge, transparency and a dynamic yet practical approach to innovation. We were also particularly impressed by their tailored approach and the customisation they could offer to the portfolio to suit our specific needs. We look forward to working with them.”
Payden & Rygel senior portfolio director and head of business development for UK and Europe, Mark Stanley, added: “We are in an environment of low fixed income yields and this is encouraging investors to look at absolute return approaches more closely. SAUL is a large and sophisticated scheme making this appointment a strong endorsement of our approach. We are looking forward to working with them and getting the opportunity to showcase the full range of our capabilities.”
The move comes as part of a wider risk management framework adopted by the trustees last year, which sets out an objective to get the scheme back to full funding by 2036.
The framework included the set up of a liability driven investment (LDI) portfolio; the establishment of funding triggers for additional interest rate and inflation hedging if necessary; and diversification of the portfolio, which included the absolute return move and a move into risk parity.
SAUL’s 2013 Annual Report and Accounts said: “The programme is designed to systematically increase the protection that SAUL has against adverse changes in both bond yields (interest rates) and inflation. The hedging programme has both automatic increases in hedging and also a trigger mechanism whereby in the event the funding position improves additional hedges will be put in place to protect to a certain degree that improvement.
“Over the longer-term, the diversified investment strategy is expected to provide some protection for the Scheme against the continuing rising cost of the liabilities, a dynamic that the Committee monitors formally on a quarterly basis but more frequently through the funding trigger monitoring programme.”
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