Two public pension funds in Scotland reported double-digit investment returns for the year ended March 31, with equities driving overall gains.
Lothian Pension Fund, Edinburgh, recorded a 15.5% investment return in the 12 months ended March 31, driven by global and U.K. equity returns, while the Strathclyde Pension Fund, Glasgow, recorded a 25.1% return over the same period.
The Lothian return compared with a loss of 3.6% for the year ended March 31, 2020.
The pension fund said in a financial report published Tuesday that its annual return over the 10 years ended March 31 was 8.8%, below its target return of 9.4%. The fund's five-year annualized return was 8.5%.
Assets grew by 16% to £8.7 billion ($12 billion) over the year.
The fund's global public equity portfolio returned 38.9%, while the fund's U.K. equity portfolio achieved a return of 26.7% in the 12 months to March 31. The fund had a 60% overall exposure to equities as of March 31, lower than its strategic allocation of 65%.
While the fund has a 7% strategic allocation to gilts, its actual exposure was 5.5%. Within that, its nominal gilts portfolio lost 5.5% in the 12-month period, while its exposure to index-linked gilts delivered a 2.3% gain. Just over 60% of the fund's actual gilts allocation is invested in index-linked gilts, while 30.4% is invested in nominal gilts. The rest of the fund's actual gilts allocation was invested in cash.
The strategic asset allocation to non-gilts fixed income, including corporate investment-grade bonds and U.S. Treasuries, accounted for 10% of all assets. The fund's actual non-gilt exposure was 9.2%. The fund's investment-grade bonds allocation delivered a return of 7%.
U.K. real estate gained 2.5% over the year ended March 31. The fund allocated 18.2% of its assets to real assets, above its strategic asset allocation of 18%. Almost 60% of the real assets exposure is invested in infrastructure. The rest is invested in real estate. Infrastructure returns were not provided.
Beyond the allocation to cash within the gilts portfolio, a further 7.1% of the fund's assets is invested in cash.
"COVID-19 brought many challenges for our members, employers and tenants and we've done everything we can to help and support them through these difficult times," Doug Heron, outgoing CEO of the fund, said in a news release accompanying the report.
Mr. Heron will leave Lothian later this year to become CEO of the 4.4 billion Swiss francs ($4.8 billion) CERN Pension Fund, effective Aug. 1. David Vallery is replacing Mr. Heron in the role.
Separately, Strathclyde Pension Fund's 25.1% investment return for the year ended March 31 was also driven by equities.
The return was equivalent to a £5.6 billion gain, compared with a 3.5% loss for the year ended March 31, 2020.
Over a three-year period, the fund's annualized return was 8.6% and over a five-year period the annualized investment return was 10.8%.
Assets increased 25.8% to £26.3 billion.
The fund's equity portfolios returned over 40% in aggregate, the latest annual report said. The return was boosted by "spectacular individual returns from the specialist portfolios" of U.K. and overseas small companies, the report added.
The fund invests 56.2% of its assets in equities and 6.2% in credit. Some 15.6% is invested in short-term enhanced yield strategies and 18.5% in long-term enhanced yield strategies. The rest is in cash.
Short-term enhanced yield strategies achieved an aggregate return of 15.4%, while long-term enhanced yield in aggregate lost 1.85%.