Strathclyde Pension Fund, Glasgow, Scotland, returned 23.1% on its investments for the fiscal year ended March 31, bolstering assets by 22% to £19.6 billion ($24.4 billion) said the pension fund's draft annual report.
The pension fund achieved a 2.1% investment return for the year ended March 31, 2016.
The pension fund made a number of changes to its asset allocation over the year ended March 31, in line with plans to reflect challenges faced by local government pension schemes. "In common with many (LGPS) funds, the Strathclyde Pension Fund is at a tipping point" where liabilities of retirees and former workers who have yet to retire have begun to outweigh active participant liabilities; and cash flows are shifting from a net income figure to net outflows. "The investment strategy is being developed to reflect these changing dynamics," the draft report said.
The pension fund is undergoing a phased process to adopt an asset allocation that reduces risk, increases diversification and ensures the pension fund's strategy changes with its liability profile over time.
In the year ended March 31, equity exposure was reduced to 62.5% from 72.5%. Over the next couple of years, it will be reduced further to 52.5%. Two potential future reductions could take the equities allocation to 42.5% and then 32.5%.
Exposure to credit grew to 6% in the past year, from 3%. It is set to remain at that level.
The pension fund's exposure to short-term enhanced yield assets has grown to 15% from 7.5%, and will increase to 20% over the next couple of years. Future increases could take it to 30%. Similarly the pension fund's exposure to long-term enhanced yield increased to 15%, from 12.5%, and will grow to 20% under the second phase and potentially to 30%.
The remaining allocation to hedging and insurance assets has fallen to 1.5% from 4.5%, and is set to remain at that level.
In the past fiscal year, the pension fund also carried out its first analysis of the fund's carbon footprint, with results that "were encouraging in confirming that the fund's portfolios are less carbon intensive than a market neutral strategy," the report said. Results will inform ongoing discussions with portfolios managers, and the analysis will be repeated in the future.
The report also acknowledged that the pension fund receives regular calls to divest from fossil-fuel companies and other sectors "but continues to resist this approach as being less effective than a smart and sensible carbon management strategy and active engagement with companies and industry participants."
The draft accounts will now be submitted for auditing by Audit Scotland, an independent body that audits public organizations in Scotland, said a statement on the pension fund's website.
A spokesman could not be reached for comment by press time.