Interview – TfL Pension Fund
INTERVIEW – PADMESH SHUKLA
“Good governance has been the stepping-stone to everything we have achieved in the past 10 years.”
The chief investment officer of the TfL Pension Fund sits down with Mona Dohle to discuss home bias, the benefits of alternatives, believing in developing markets and emerging from the LDI crisis like a winner.
You have been with the TfL Pension Fund for more than 13 years. What has changed during that time? Perhaps it might be better to ask what hasn’t changed? Our strategic asset allo- cation has seen a complete sea change. It is now much more globally diversified. Then there is the governance of the fund, which has gone through a complete refresh. A lot of great work has been done here by our fund secretary, Stephen Field. Good governance has been the stepping- stone to everything we have achieved in the past 10 years. It has allowed us to have much greater in-house resources and capacity and to take greater control over our destiny and how we work with our advisers and key stakeholders. Like many other pension funds, we have made a conscious decision to address our home bias as part of building a more robust portfolio. Our allocation to the UK
12 | portfolio institutional | June 2023 | Issue 124
across all asset classes was 60% at one time, but is now down to around 8%, excluding our UK linkers and around 20% with them. That shows how big the change has been and how outward look- ing we have become as a scheme. Unsurprisingly, sustainability is now fully embedded in our investment framework. In 2010, not many of us had heard about climate change, let alone net zero. Sus- tainability and climate change is now the third axis of our investment strategy. Finally, we had £4bn in assets back then; we have nearly £14bn today and are fully funded on technical-provision basis.
Why are you reducing your equity expo- sures in favour of alternatives? Our key focus has been diversification with a clear focus on downside protection and risk management more generally. I’m sure that was always the case, but we
are now thinking much harder about the return premiums and how we can slice and dice our strategy to be more diversi- fied by economic environment, geogra- phy, sectors, style and themes. That means our allocation to equities is down to 35% from a high of 65%. And in that bucket, the UK that once made up al- most 60% of our equity allocation, is now more like 4% to 5% in line with our now much more global and diversified focus. Our reduction to equities has been matched by an increase in allocation to al- ternatives, jumping from a low single dig- it to more than 40% and rising. Building a robust alternatives portfolio and reaping its benefits has been the real story of my fund, my trustees and my time here.
These changes cut right into the debate of should British pension funds invest more in UK equities. Why have you chosen not to do so?
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