NOW: Pensions – Interview
the diversified growth fund and form part of our balanced investment risks. There has long been an assumption that investing in equities and bonds delivers diversification. However, it is becoming increasingly recognised that in periods of heightened market volatility those correla- tions break down. This is something we analysed as part of our investment strategy review.
The question is: how do we overcome these challenges? We wanted an invest- ment strategy that is simple and straight- forward to communicate to our members.
That is why the balanced-risk approach includes a combination of equities and inflation-hedging assets, amongst others. Within the portfolio, we use a combina- tion of inflation-linked bonds, but we also look at commodities because of their inflation sensitivities. We revisited this when deciding to exit fossil fuels and to hold a basket of commodities, such as metals that were better aligned to the transition to a greener economy.
Are you considering adding any illiquid or alternative assets to your portfolios? We are not looking at adding them at pre- sent. Our investment manager allows investments into such assets in our diver- sified growth fund and this is something we keep an eye on.
The trustee also regularly reviews the future of the investment strategy.
What are the main obstacles for the invest- ment strategy: the charge cap or daily pricing? They are important but we consider these challenges as something to overcome. Alongside pricing and operational issues, there is another consideration, member assets could come and go and the level of illiquidity we carry with them changes. This is something to consider whenever we introduce new assets to the portfolio.
If you expect a recession, will you adjust your investment portfolio? From the S&P500 entering into bear mar- ket territory to the dollar jumping and the US yield curve inverting, there are defi- nite signals pointing towards recession. That being said, we are investing for the long term. By adopting a risk-balanced approach, we are looking at steady accumulation in real terms through those various market phases. We are not looking to tweak the investment strategy in an attempt to time the market. When it came to reviewing the invest- ment strategy with the trustees, an impor- tant consideration was how it performs in heightened volatile markets. Markets have generally been favourable in recent years, but that will not always be the case. Our investment manager reviewed mar- ket data stretching back more than 100 years. When looking at scenarios, it is important to remember that what hap-
EMMA MATTHEWS’ CV
March 2022 – Present Head of investment NOW: Pensions
January 2020 – March 2022 Client manager Cardano
April 2019 – December 2019 Senior associate Willis Towers Watson
January 2018 – March 2019 Lead associate Willis Towers Watson
August 2017 – December 2017 Senior investment analyst Willis Towers Watson
January 2017 – July 2017 Investment manager Charles Stanley
December 2014 – January 2017 Investment adviser Charles Stanley
October 2012 – December 2014 Trainee investment adviser Charles Stanley
pened in the past may not replicate itself perfectly in the future. So we are keeping an eye on everything and continue to monitor the portfolio closely. But the approach we have adopted was designed with potential risks, such as a recession, in mind.
DGF asset allocation – March 2021 Diversifying assets 7.9% Inflation hedging 16.1% 40.3% Equities 53% Interest rates Interest rates 35.7% 22% Equities Inflation hedging 18%
DGF asset allocation – March 2022 Other 7%
Source: NOW: Pensions Issue 115 | July–August 2022 | portfolio institutional | 17
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