The role of the Investment Committee in the investment governance process is to design an investment strategy which is consistent with the trustee’s broad objectives. Their role is then to oversee the implementation of this strategy by the USS’s London Investment Office(LIO) and to monitor progress.
The trustees’ broad objectives are set out in the statement of Investment Principles. The key elements are:
- a long term time horizon – the scheme is growing and with the employers’ covenants strong, there is less need to be concerned about short term volatility
- emphasis on the risk-reducing benefit of diversification – a fundamental investment principle
- emphasis on equities and alternative investments as the means by which the superior returns required by the objectives will be achieved.
In translating these principles into a workable investment strategy, there needs to be a common frame of reference. This should ensure that the trustees’ broad objectives are linked directly to the actions of the LIO.
Since there is no certainty in investment, and since the past is not a helpful guide to the future, the frame of reference must consist of investment beliefs rather than investment certainties. Since they are not certainties, investment beliefs should be constantly monitored as a belief, no matter how strongly held, may be flawed.
Formulation of these beliefs rests with the Investment Committee but ownership rests with the USS Board. Not only do the Investment Committee’s investment beliefs provide a frame of reference on which the strategy may be designed, but they also provide guidance to the LIO. They are a discipline against which the LIO may benchmark its processes and the beliefs define how the LIO should operate.
To download the investment beliefs document please click here