search.noResults

search.searching

dataCollection.invalidEmail
note.createNoteMessage

search.noResults

search.searching

orderForm.title

orderForm.productCode
orderForm.description
orderForm.quantity
orderForm.itemPrice
orderForm.price
orderForm.totalPrice
orderForm.deliveryDetails.billingAddress
orderForm.deliveryDetails.deliveryAddress
orderForm.noItems
National Grid – Interview


happen, but we will be okay. There are scenarios where your funding level could drop by 10%. Trustees are keen to avoid such situations, as are we.


Speaking about risk, what are the biggest systemic risks in the market at the moment?


In no particular order: climate change will provide great challenges but will probably also create opportunities. Climate is high on our agenda. It is about adhering to the Paris Agreement, but also about setting short-term objectives in terms of temper- ature alignment and how we can imple- ment them into our asset allocation. The trustees recently decided to exclude ther- mal coal.


The binary prospect of facing deflation or stagflation, the challenges with regards to fair capitalism and how can we preserve capitalism whilst making it work to the benefit of all involved are other risks. Then there is the impact of Covid and what it could mean for de-globalisation in addition to the global political scene. To what extent will that have an impact on global supply chains? Will it increase costs? What does it mean for companies’ bottom line? Is it the case that whilst de-globalisation might increase costs and impact company earnings, that it improves the likelihood of these compa- nies being able to re-pay their debt because they might be more resilient? The list is endless.


Closer to home, what is the impact of Brexit? Will its impact change because of Covid? The financial position of the UK government is different now than it was say, two years ago. These are all things we look at.


The first point you mentioned here was cli- mate change. Earlier this year you awarded quite a big renewable energy mandate. Could you tell me more about that? As part of our de-risking journey we want to


have more investments in secure income assets. These are secure, cash-


flow generating assets and this portfolio fits within that objective. Additionally, it also has beneficial ESG characteristics. That is not the only mandate. ESG is something we have implemented across the board and is addressed in every review meeting because ESG is considered a risk driver. Certainly, for governance and envi- ronmental factors, there is now enough evidence that it pays to pay attention to it. Well governed companies usually make better investments.


How are you implementing ESG principles in your fixed income portfolio? Clearly, the opportunities for engagement are different for an equity portfolio than for a credit portfolio. For our buy-and- maintain portfolio, which we intend to hold to maturity, we want to make sure these long-term risks are considered in the analysis before making the investment.


As part of a recent buy-and-maintain credit manager selection, we paid atten- tion to how they try to incorporate ESG risks in their analysis. Whether it is tobacco or coal, we want to understand how a manager implements ESG.


Would you consider divesting from compa- nies in certain sectors if the scope for engagement is limited? If, after having gone through an appropri- ate process, in the end engagement doesn’t result in tangible improvements there is probably only one thing an inves- tor can do.


How do you mitigate broader investment risks in your portfolio?


It means investing in assets that are in-line with the scheme’s strategic objec- tive. Depending on whether you pursue a cash-flow driven approach or are plan- ning for buyout, you need to find the assets that fit that ultimate objective. That means we gradually decreased our allocation to high-return assets and replaced them with what you could call


“boring” assets. It also means reducing our allocation to private equity and prop- erty in a well-considered manner. That also means don’t rush if you do not need to.


Finally, what will be the long-term implica- tions of the Covid pandemic for investors? Let’s start with the low hanging fruit: Peo- ple are still hesitant to go back to the office five days a week. Not so much because they do not like to be in the office but because they prefer not to commute on a packed train. What does it mean for your retail business? What will it mean for the property market? How will it affect those living in the centre of London compared to those living further away? Who is going to pay for this in the end? Will it be financed by higher taxes for individuals or corporates? That will depend on what the political environment is. We should expect a low return environ- ment going forward. You could say that has been expected for many years and there have been booming equity returns but going forward you would expect low returns across all asset classes. Investors are placing more money into private markets. I hope they are price and risk aware and do not go into those mar- kets at any price. You want to be paid for the additional risk of illiquidity, but illi- quidity can also be an advantage because you do not have to deal with the daily vol- atility of equity markets.


There are a lot of uncertain factors about the current situation, from the likelihood of a vaccine to elections in the US and Brexit. These factors will affect our invest- ment strategy and we will adjust our jour- ney based on them. It is a bit like an obstacle-course with constantly moving obstacles and we need to be able to get through it, which makes it interesting. It is, of course, easier to pretend that these obstacles are not there but you should be cognisant that there are many things that you just don’t know.


Issue 97 | October 2020 | portfolio institutional | 21


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52