Investment Beliefs 

USS Investment Beliefs and Guiding Principles – Summary

USS is an open, defined-benefit pension fund with a strong covenant, positive net cash-flows and obligations stretching to the end of this century.

Our investment beliefs and guiding principles outline key aspects of how we set and manage the fund’s exposures to investment risk, with due attention to stakeholder interests and ongoing regulatory oversight.

1. We balance twin objectives when setting our investment policy: to achieve sufficient real returns over the long-term for the scheme to be affordable and to keep the contribution rate stable. In doing this, a degree of mismatching between assets and liabilities is unavoidable.
2. The chief source of long-term investment returns is participation in economic growth, via equity markets or otherwise.
3. As a long-term investor, USS is relatively well placed to harvest the extra returns paid for bearing equity, credit, illiquidity and other risks, within an appropriately balanced portfolio to mitigate short-term volatility.
4. We review our asset mix periodically, as current valuations strongly influence future investment returns and risk of loss.
5. Our risk-taking capacity is limited by prudential considerations, stakeholder concerns and regulatory pressures related to Scheme funding and periodic valuations.
6. Diversification across traditional and alternative assets and strategies helps to maintain investment returns while mitigating risk – as does hedging of risks, when possible at reasonable cost.
7. Active management can add value, since no investment market is efficient all the time. We aim to provide our active managers with appropriate flexibility to generate outperformance within suitable risk controls. Certain mandates may allow scope for leverage or short positions. Where beating the ‘field’ is particularly difficult or expensive, passive management may be preferred.
8. Principal/agent issues must be carefully managed. We work to ensure that investment managers or vehicles, as well as investee companies, are governed and appropriately incentivised in the long-term interests of their investors or owners.
9. The in-house team is the preferred investment manager for the Scheme. It delivers continuity and detailed understanding of the Scheme’s requirements and priorities, without distractions or divergent incentives arising from asset-gathering, commercial interests or short-termism. External managers are accessed as required, where specialised expertise is unavailable, uneconomic or cannot be developed in time internally.
10. Responsible investing requires a full view of risks and opportunities. Environmental, social and governance (ESG) factors should be integrated into the investment process of our managers, whether in-house or external.

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