Pension Protection Fund, London, saw its net investment return drop to 1.7% over the fiscal year ended March 31, compared with a 25.9% return the previous fiscal year, said its latest annual report.
Assets at the PPF grew 3.5% to £23.4 billion ($33.7 billion) as of March 31, and the funding ratio improved to 116.3%, up from 115.1% a year earlier. The lifeboat fund’s surplus increased 13.9% to £4.1 billion.
The fund’s liability-driven investment program and its investment growth portfolio each produced a net return of £200 million over the fiscal year.
Alan Rubenstein, CEO of the PPF, said in the annual report: “Now that the PPF is equivalent in size to some of the largest pension funds in the U.K., we believe it is appropriate to develop our asset management capabilities to reflect this.”
Executives have already made clear their intention to take a phased approach to insourcing, starting with its LDI program, “and this project will be a significant focus over the coming year,” Mr. Rubenstein said.
As part of plans to transition part of the LDI program in-house this year, the fund hired Trevor Welsh to a new position as head of liability-driven investment last August.
The fund’s new risk management systems are also in place to support insourcing, and the report said a portfolio management system giving executives the ability to manage assets in-house was procured in the 2016 fiscal year.
“More than a decade after our creation, we have grown into a sophisticated organization, in a healthy financial position, and with a strong balance sheet,” said Andy McKinnon, chief financial officer, in a video accompanying the annual report.
In his statement, Mr. Rubenstein added that while it is not clear how the U.K.’s vote to leave the European Union will be implemented or what the consequences will be, “our low-risk approach and hedging strategy, combined with our strong balance sheet, mean we are well-placed to cope with any uncertainty or market volatility which follows.”