Universities Superannuation Scheme, Liverpool, England, returned 20.1% for the year ended March 31, bolstering assets 20.5% to £60.5 billion ($78 billion), its latest annual report said.
For the fiscal year ended March 31, 2016, the plan reported a 1.6% return.
The funded ratio was flat for the current fiscal year, at 83%.
Longer-term returns were an annualized 12% for the five years ended March 31, vs. an annualized 8.9% for the five years ended March 31, 2016.
Despite the "exceptionally high" fiscal-year return in absolute terms, the report said the fund lagged the 22.7% return of its reference portfolio — the internal benchmark.
"The underperformance vs. the reference portfolio was more than fully accounted for by the large underweight in U.K. index-linked gilts relative to the reference portfolio and additionally by the decision to underweight U.S. equities. Both of these asset classes showed exceptionally strong performance, following the U.K.'s decision to leave the EU and President Trump's election respectively," said the report.
The report also highlighted the "cost-effective move to bring more investment talent in-house at USS Investment Management," the plan's wholly owned subsidiary. It said 73% of assets are now managed internally, up from 69% in 2016. "Investment costs have decreased by £1.1 million largely due to a decrease in external manager fees," said the report.
Looking forward, "the investment outlook is being dampened as low government bond yields have, to varying degrees across asset classes, fed in high market valuations," said Roger Gray, chief investment officer, in a statement accompanying the report. "This reduced returns outlook is an important consideration for pension schemes, like USS, that offer defined benefits."
On the administrative side, the plan underwent a "challenging change program, delivered within very tight timescales." In April, 2016, the USS Retirement Income Builder, a career-average defined benefit fund for all active participants, was launched. Six months later a £55,000 salary threshold was introduced to the DB fund, and a new defined contribution plan — the USS Investment Builder — was launched. This new DC plan is automatically applied to any participant contributions above the DB threshold. It is also open to all participants as an optional extra.
"The move to a hybrid model — offering more options and greater flexibility for how members can plan for their retirement — has involved the transformation of our administrative and IT platforms and the development of new products and support services," said Bill Galvin, group CEO, in the statement. "A great deal of research has gone into making sure that USS is a scheme that works for members from payslip to portfolio to pension."