For more information contact: emailus@marcusevans.com David Adkins the Chief Investment Officer at The Pensions Trust delivered his presentation titled "Devising Innovative Investment Strategies to Combat Your Pensions Deficit" at the UK Pensions & Investments Summit. Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today. For more information contact: emailus@marcusevans.com

1. Devising Innovative Investment Strategies to Combat Your Pensions Deficit David Adkins, Chief Investment Officer The Pensions Trust

2. The Pensions Trust Established in 1946 Assets: £4.2bn (30/06/11) 37 different DB schemes under one umbrella Collective investment – unitised holdings for separate schemes Had a traditional investment structure – heavy use of equities, little hedging, focus on manager reviews

3. Asset sizes across DB schemes One large scheme representing about half of Trust assets Four further schemes with assets greater than £100m Collection of smaller schemes

4. Overview – key areas Governance Diversification Hedging policy Dynamic implementation Process of continuous improvement Scaleable solutions required to meet different needs of schemes

5. Governance Sets long-term strategy and asset allocation Recommends scheme specific funding and investment strategies Considers and implements (with IC approval) new opportunities Monitors managers, custodian and advisers Implementation and day to day monitoring Supported by: 2 independent advisers 2 investment consultants

6. Diversification of growth assets Target ratios: 50% 30% 20%

7. Division of responsibilities Long-term investment targets for each bucket Allocation across buckets agreed by trustee and employer (through FISRG) Allocation within buckets determined by Investment Committee Managers monitored against asset class specific benchmarks Active consideration of new opportunities

8. Disciplined asset-liability risk management – liability hedging ‘Markets can remain irrational longer than you can remain solvent’ (Attributed to John Maynard Keynes)

9. One reason why liability values have been rising Schemes are exposed to the risk of falling long-term interest rates and/or rising long-term inflation expectations

10. Liability hedging is a ‘dimmer switch’, not an ‘on-off’ switch Liability hedging (of interest and inflation risks) is an investment decision within a scale of 0-100% Target hedge ratio at current yields No hedging: full risk exposure Full hedging: ‘locked in’ 20% 0% 100% Higher hedge ratios if/when yields improve Most TPT schemes have hedge ratios <10%

11. Disciplined asset-liability risk management – dynamic de-risking Wouldn’t it have been nice to de-risk at these points?

12. Generic de-risking strategies Weighting to growth assets (%) Solvency level (%) Straight Line Immediate Reduction Slow Acceleration Delayed Start Appropriate when there’s a compelling need to reduce risk now. Gives trustee breathing space for further risk reduction over time Holds on to growth assets when most needed (i.e. the deficit is at its greatest) Has greater risk Appropriate when solvency level is so low that the current level of growth assets needed for some time before risk-reduction can reasonably commence Simplest and most obvious de-risking pathway, but rarely used

13. Sample de-risking strategy

14. Real time monitoring of funding positions Tool in place to monitor funding and solvency levels of all schemes on a daily basis Source: Towers Watson

15. Items under discussion Short-term defensive strategies: Includes consideration of tail risk hedging Most difficult area is how to decide when to do it without it being too late (given the funding level of our schemes) Engagement overlay: Appointing an outsourced engagement provider Objective for investment team to ‘learn by doing’ to provide additional benefits as more manager monitoring delegated Final aim still for fund managers to do this properly!

16. A lasting strategy Structure of investment strategy designed to provide maximum flexibility to meet the challenges ahead Made maximum use of technology and fresh, but well tested, ideas Focused on implementing solutions that provided bespoke strategies for individual schemes whilst also being scaleable

17. Thank youAny Questions?