The Pension Protection Fund, London, delivered a 25.9% investment return over the fiscal year ended March 31, with strong returns across both the liability-matching and growth portfolios, said Andy McKinnon, chief financial officer at the PPF.
Assets at the PPF, which takes on the defined benefit pension promises of insolvent U.K. companies, increased 39% to £22.6 billion ($35.1 billion) over the same period.
The liability-driven investment portfolio gained a net £3.5 billion over the year vs. a loss of £500 million over the year ended March 31, 2014. The growth portfolio gained a net £1 billion, compared with £400 million in 2014, according to the PPF’s latest annual report and accounts. The PPF reported a funding ratio of 115.1% as of March 31, up from 112.5% the previous year, and a surplus of £3.6 billion, a 50% increase.
“A lot (the investment return) comes from the way we match our liabilities,” said Mr. McKinnon in a video accompanying the annual report and accounts. “Interest rates have come down a huge amount over the last 12 months. That translates directly into an increase in our liabilities, so we have had to look to the investment strategy to generate an extra £1.5 billion just to offset the effect of that during the course of the year. That is a very significant sum, and we are very proud of the investment strategy that has delivered that.”
Mr. McKinnon said the PPF cannot be complacent about its situation, despite the investment returns. “We have to recognize that is a snapshot of today’s situation — the outside world continues to be uncertain … the deficits in the schemes that we are protecting has risen by four times,” he said. The combined deficit was £292 billion as of March 31, he said, up from £70 billion a year earlier.
He added the PPF would continue to innovate and develop its strategy. “That is the reason why we have recently decided to look in detail at the ability to bring some of that investment management in-house and set up our own operation to manage assets directly, which is another exciting development for us,” said Mr. McKinnon.