Interview – USS Investment Management
INTERVIEW – SIMON PILCHER
“We are not the same as every other investor, so the important question is how we should invest.”
Simon Pilcher, chief executive of USS Investment Management, speaks to Mona Dohle about reviewing the way the UK’s largest pension scheme looks at equi- ties, how the pandemic has changed the economy and engagement as an infrastructure investor.
These are turbulent times for investors. In- deed, within weeks, your assets shrank by around £10bn to £64.3bn, before recovering. What lessons have you drawn from the past year?
That you cannot predict the future. I am not sure if two years ago any of us would have predicted the whole Covid experi- ence. So, you need to be humble when making predictions by recognising that your ability to forecast is exceptionally limited. You also need to have resilience built into how you make your invest- ments so you can cope with unforeseen circumstances. Having a diversified portfolio is impor- tant. Key for us last year was having suffi- cient cash and collateral within
the
scheme to ride out volatility without becoming a forced seller. It also helped us buy cheap assets. Ideally, your investment
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strategy will enable you to take advantage of these opportunities.
The recovery in markets was substantial and surprisingly sudden. Market levels are higher now and the value of the scheme exceeded £80bn by the end of the year. That tells its own story in terms of our ability and courage to react to volatility. You are often not able to take forever when making decisions, you need to make them swiftly.
When you used your cash to get back into the markets, what did you buy? We bought some corporate bonds at much wider credit spreads than had been present before the pandemic and attrac- tively priced government bonds, particu- larly in the UK. For several weeks we saw stress in the bond markets and bought some cheap inflation hedging.
We also had big positions in US treasur- ies, which strongly outperformed gilts. We were able to take some of our profits in the US and move them to the UK. What we have also done, but more gradu- ally, is identify attractive opportunities in the private markets during the second half of 2020. We bought some interesting assets there.
Why did you make some major strategic investment changes last year, which included closing your developed markets equity team? We took that decision before Covid, so it had absolutely nothing to do with it. My conviction is that we often spend more time thinking about the perfor- mance of a particular equity portfolio rel- ative to a benchmark than asking why we are investing in equities at all. What is
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