Against a mixed backdrop in the financial and economic markets, the in-house team delivered strong investment performance during the year to 31 March 2015, with higher than benchmark performance contributing an additional £500 million to the value of the scheme.
The total value of the fund rose by 18.1% to a new high of £49 billion. This investment return exceeded the return that would have been delivered by a comparable passive investment strategy by 1%. This reflects the value added by the USS investment team.
Growth in total scheme assets (year end 31 March).
Importantly, investment performance has been consistently strong over three and five-year periods. Over the past three years, the total fund achieved above benchmark returns of 0.7% whilst over the last five-years, the total fund achieved above benchmark returns of 0.6%.
Over the year to 31 March 2015 there was a great deal of volatility in financial markets. The real yield on government bonds continued to decline, combined with persistently low interest rates and the continuation of a more pessimistic outlook for investors. These factors resulted in the value placed on the scheme’s liabilities increasing by £10.4 billion to £57.3 billion. The increase in liabilities outweighed the growth in the scheme’s investments, leading to the increased deficit of £8.2 billion, with the funding ratio falling from 89% to 86%.
Following the 2014 actuarial valuation and consultation with Universities UK the trustee updated its recovery plan for addressing the scheme’s deficit. The trustee’s overarching funding principle, supported by the employers, is that the amount of pension risk within the scheme should be proportionate to the amount of financial support available from the scheme’s sponsoring employers. Furthermore, there should be no increase in the reliance placed on that support over time. In order to maintain an appropriate level of risk within the scheme in the future, opportunities will be taken to gradually reduce the amount of investment risk within the scheme, given the right economic conditions, over a 20-year period. In this way the amount of reliance placed on the sponsoring employers will not increase over time.
The trustee remains of the view that whilst the current position is undoubtedly difficult with considerable volatility, these circumstances should not be considered to provide any definitive perspective on the long-term outcome. The trustee continues to focus on the long-term, a perspective which is backed by the nature of the financial support that is available from the scheme’s sponsoring employers. In addition to periodic monitoring, the long term investment outlook will again be reviewed at the next actuarial valuation.
Find out more about our investment performance in our annual Report and Accounts.