Investment Builder investment performance

Assessing the investment performance of the Investment Builder

An investment balanced scorecard was introduced for the Investment Builder, the defined contribution (DC) part of USS, in January 2023. 2024 was the second year of assessing USSIM’s performance against the DC scorecard.

The balanced scorecard tracks quantitative and qualitative performance. It provides a structured approach to bring together performance across different categories or strands.

Our scorecards allow the Investment Committee to assess the investment and advisory performance of our in-house investment manager, USSIM, independently and holistically.

The scorecard covers six important categories, which are the same as those for the Retirement Income Builder:

Investment return
Investment risk
Active management
Portfolio resilience
Responsible investment
Advice and support

The output of the scorecard is a rating on a scale of Very Good, Good, Average, Poor and Very Poor.

The metrics within it are calculated or overseen by the performance and investment risk teams who are independent from the investment team. They are provided to the Investment Committee, who assess the performance of USSIM against the scorecard each year.

In 2024 the Investment Committee concluded on a score of marginally below Average to Good for the Investment Builder. Due to the diversified nature of USSIM’s DC portfolios, USSIM’s performance was considered to be marginally below target based on overall investment returns versus long-term real return targets and public market comparators (which tended to be less diversified with higher equity allocations).

Below are the metrics used in the DC investment balanced scorecard:

You can also view a plain text version in the accordion below

1. Investment return

a. Member realised return versus blended long-term return targets:

i. Younger member (20 years to retirement)

ii. Retiring member (5 years before retirement)

iii. Retired member (at retirement)

b. Fund realised return versus blended long-term return targets (CPI + 3/2/1.5% p.a. for Growth/Moderate/Cautious funds):

i. For Default Lifestyle Growth funds

2. Investment risk

a. Asset risk (asset volatility ex-ante and ex-post):

i. Younger member (20 years to retirement)

ii. Retiring member (5 years before retirement)

iii. Retired member (at retirement)

b. Long-term inflation sensitivity:

i. The allocation to assets with sensitivity to long-term inflation

3. Active management

a. Asset allocation:

i. Default fund returns versus market comparators and peer group

b. Public markets:

i. Aggregate alpha

ii. Aggregate ex-post information ratio of internal and external actively managed mandates

iii. USSIM assessments informed by mandate balanced scorecards

c. Private markets:

i. Aggregate alpha

ii. USSIM assessments informed by mandate balanced scorecards

4. Portfolio resilience

a. Resilience against market events:

i. Maximum drawdown in the Default Lifestyle Growth funds over a rolling 5-year period (ex-post), for sample members as in 1a and 2a

b. Liquidity (KRIs):

i. Capital allocation to illiquid assets as a % of each Default and Ethical Lifestyle Growth fund

5. Responsibility investment

a. Climate risk management:

i. USSIM assessment against its objectives/KPIs

ii. An assessment by the Risk team of how USSIM is delivering vs the Trustee’s net zero ambition (KRI)

iii. An assessment by the Risk team of how USSIM is delivering on managing physical risk (KRI)

b. ESG integration:

i. USSIM assessment against its objectives/KPIs

ii. An assessment by the Risk team of how USSIM is integrating ESG factors (including reporting and stewardship)

6. Advice and support

a. IC assessment of USSIM advice:

i. The IC survey helps to assess the performance of USSIM’s advisory capabilities

ii. A qualitative assessment by the IC based on the advice delivered throughout the year

b. Support provided by USSIM:

i. Support to USS non-executive bodies, members and other stakeholders delivered through the year

c. Product design and innovation:

i. Qualitative external assessment on how the DC investment proposition compares relative to peers

Below you’ll find an analysis of some of the metrics within the DC scorecard that contributed to this rating. All the data is to 31 December 2024 and focuses on the growth funds within our Default Lifestyle Option as this is where most DC assets are invested.

1. Investment return

In this category, we look at the return of our DC growth funds versus their long-term return targets.

Overall DC performance was mixed, with the default and ethical growth funds exceeding their long-term return target over the year but over five years underperforming their long-term return target.

	YTD Absolute	5 years Absolute (ann.)	YTD vs Real Return Target	5 years vs Real Return Target (ann.)
Default Growth	10.6%	6.3%	4.7%	-1.2%
Default Moderate	7.9%	4.7%	3.2%	-1.8%
Default Cautious	6.0%	2.7%	1.9%	-3.2%

2. Investment risk

In this category, we look at investment risk metrics to measure the volatility of our DC funds.

We measure both experienced volatility and expected (or modelled) volatility and set limits on the latter. Experienced volatility is a measure of how much investment returns have moved around. Expected volatility estimates how much volatility might be experienced looking forward, based on a model of returns. The funds remained within the volatility limits throughout the year.

3. Active management

In this category, we assess how USSIM's actively managed mandates have performed compared to market comparators.

Our growth funds in the Default Lifestyle Option trailed some market comparators over five years and are behind on a risk adjusted returns basis.

Our DC investment adviser reviewed the USS Growth Fund against 18 UK DC master trust default growth fund returns over the 12 months to 31 December 2024. The USS Growth Fund returns were similar to the other diversified default growth funds in the peer group, however those with larger allocations to equities delivered higher returns over the year resulting in the default funds trailing market comparators over 1 year and 5 years.

Our globally diversified portfolio looks to spread investment risk across a variety of factors and the USS Growth Fund is therefore invested in a number of different asset classes including equities, property, infrastructure and bonds. As a result of this diversification, its performance was behind some less diversified, more equity-reliant peer funds. The fund has outperformed its long-term return target (LTRT) since inception in October 2016. We believe that using an LTRT, which is CPI inflation +3% each year for the USS Growth Fund, is in the best financial interests of our members as it allows them to see how their Investment Builder savings are performing relative to inflation over the long-term.

The three scorecard categories below are more qualitative assessments. We have therefore provided some commentary on how USSIM has been measured.

4. Portfolio resilience

In this category, we assess our growth funds’ resilience over time.

As we mention above, our diversified portfolio looks to spread investment risk across a variety of factors and regions. We measure how much this diversification contributes to reducing volatility in returns for the growth funds.

We also measure the biggest fall in the value of members’ DC savings from its peak to its trough over a given period, to see how resilient the funds have been. Holding a diverse portfolio should help to reduce the likelihood of experiencing large short-term losses.

5. Responsible investment

In this category, we assess USSIM’s climate risk management and its integration of wider environmental, social and governance (ESG) risks into its investment decision-making.

The scorecard therefore provides a framework for integrating financially material ESG factors into our governance. While these issues have always been important in the assessment of USSIM’s performance, they are now factored in, in a more systematic way, under the investment balanced scorecard approach.

The Investment Committee noted that USSIM had made distinct and clear progress on responsible investment, in terms of its climate risk management objectives and how ESG factors are integrated in areas such as reporting and stewardship. One specific example was the successful onboarding of a sustainability-themed equity mandate in the ethical investment options.

6. Advice and support

In this category, we assess the quality of the investment advice provided by USSIM.

USSIM provides investment advice to the Investment Committee on a range of issues. The Investment Committee meets regularly to consider investment issues on behalf of the trustee.

USSIM’s investment advice around the change in the composition of the default growth funds to improve risk-adjusted returns, via the inclusion of co-investments and of asset-backet securities, was acknowledged as innovative. Additionally, the investment innovations delivered by USSIM were instrumental in USS winning the award at the UK Pensions Awards 2024 for DC Innovation of the Year.

Further information

View our Report and Accounts for more information on our investment performance.

Report and Accounts

Investment Builder investment performance

Assessing the investment performance of the Investment Builder

Below are the metrics used in the DC investment balanced scorecard:

The metrics used in the DC investment balanced scorecard (Text version of above graphic)

1. Investment return

2. Investment risk

3. Active management

4. Portfolio resilience

5. Responsible investment

6. Advice and support

Further information