Page 10 - BAA Digital Focus

Investment update
Photo of RG
Ask the expert
Focus: Hi Robert, thank you for taking the time to talk with us today.
RG: My pleasure.
Focus: I think it would be helpful to members if you could please explain the role Redington undertakes on behalf of the Trustees?
RG: Put simply we advise the Trustees on how to invest the Scheme assets so helping to repair the de cit
and secure members bene ts. This involves understanding the long
term objectives and constraints of the Scheme and the Company and working collaboratively with them and their advisers.
Focus: What services do Redington provide for the Trustees?
RG: We provide long term advice around setting the investment strategy to meet the objectives. In practice this means advising the Trustees on levels of risk and return and what asset classes and fund managers they invest in in order to achieve these objectives. We also monitor the performance of the investments and where necessary make changes to the strategy and managers.
Focus: What is your role with regard to providing those services?
RG: I am the lead Investment Consultant and work alongside my colleague Patrick O’Sullivan and a wider team of experts at Redington to provide this advice. We never lose sight of what a responsibility we have but I can tell you that we have a wonderfully talented team focused on helping the trustee achieve its objectives.
Focus: The Trustee appointed Redington in February this year, please can you briefly outline Redington’s immediate focus with regard to the BAA’s investment strategy.
RG: Of course. There are three areas of immediate focus. Firstly what
we might call ‘quick wins’ around updating the existing investment mandates with the Schemes’ fund managers. This has already resulted in a small improvement in the returns and risks of the funds in addition to a fee saving. Secondly, we are nding ways to increase the return on the overall assets of the Scheme without increasing the risk; and nally we de ning the long term investment strategy of the scheme – looking forward in 10 years.
Focus: On 30 September 2016, 42% of the Scheme assets were invested in liability hedging assets. What does “liability hedging” mean?
RG: The liabilities, that is to say pensions in payment and future member pensions, are sensitive to three key risks - long term interest rates, in ation and longevity. When long term interest rates fall, and in ation rises this makes the values of the liabilities increase. Likewise, when people live longer the value
of the liabilities increases. All these factors have at some point in the
last 10 years affected the Scheme. “Liability Hedging” assets help the scheme to protect against the rise and fall in the liabilities and provide secure cash- ows to pay pensions. They are highly sensitive to long term interest rates falls, in ation rises and are designed to hedge against the impact of interest rate and in ation movements on the value of the long term liabilities. They are a key part of the schemes assets to help secure the bene ts of the members.
Focus: The Fund’s actual asset allocation as at 30 September 2016 is significantly different to
the Target asset allocation. Is the Trustee planning to take action to rebalance back to the Target asset allocation?
RG: The Scheme is currently nding ways to increase the return on the overall assets without increasing the risk. As I have mentioned we are looking to rede ne the long term investment strategy and this in turn will help re ne the new target asset allocation, to best meet the schemes objectives.
Focus: How do you see Brexit affecting the Scheme’s investment strategy?
RG: As mentioned the Scheme invests in 'liability hedging' assets which will be affected by Brexit but so will the value of the liabilities. The purpose of these assets is to mirror moves up and down in the value
of the liabilities regardless of what happens as a result of Brexit. The scheme believes in diversi cation
by asset class, by geography and by investment style. This approach is designed to help achieve the returns needed in a variety of environments and helps mitigate against events such as Brexit.
Focus: What are the biggest investment challenges you and the Trustee face over the new few years?
RG: The global economy still faces serious headwinds which poses both threats and opportunities in the
world of investing. The scheme has two competing challenges - growing the assets to repair the de cit AND securing the bene ts of the members. The challenge we face is to design
an investment strategy to help do both, in a systematic and disciplined way. We also have to be aware of, and agile to, changes both at a macro level, for example the global investment markets and at a micro level, for example what’s happening to the sponsoring company, Heathrow.
10 Focus - Summer 2017