USS Investment Management, the wholly-owned investment management arm of the Universities Superannuation Scheme, has announced a plan to reshape its developed equity markets away from traditional stock-picking and towards a longer-term thematic approach which better leverages its internal investment capabilities in matching its pension liabilities.
Thirteen roles will be placed at risk of redundancy and the firm is now entering a period of consultation with impacted employees, some of whom may be redeployed to other teams. The remaining 18-strong equities teams focussed on Global Emerging Market Equities (GEMs), Quantitative Analysis and Responsible Investment will be unaffected by the change.
The evolution of the implementation style for the developed markets equities team marks no change to the investment objectives, asset allocations or outperformance targets for the scheme. Nor is this any reflection on the performance of equities which was very strong in 2019.
The new approach will involve the quantitative and responsible investment analysts working closely together to identify those long-term investment opportunities that are best suited to generating strong investment returns in order to meet USS’s liabilities. For developed markets this will mean focussing less on individual stocks and more on the impact of ESG issues and other long-term factors as a driver of investment themes and how they should shape the portfolio in the years to come.
The firm will continue to focus on stock selection in those areas where there are long-term structural opportunities to do so and these will also receive a strong responsible investment overlay so that there is a consistent view across markets and assets classes.
BlackRock has been appointed as a transition manager to oversee the three equity mandates of: Japan, the US and Pan-Europe while this transition in approach is undertaken. Once this process has been completed, the portfolio will be returned to be managed in this new way.
Simon Pilcher, CEO of USS Investment Management, said: “This change is about focussing our internal investment capabilities on where we can add the most value, given the returns we need to generate for members. Longer-term strategic themes, particularly in the responsible investment space, are growing in importance to investors like ourselves and through this we will reshape the portfolio to best adapt to future challenges. Our investment objectives, active management ethos and parameters will remain the same, as will our focus on delivering above average returns at a lower cost than our peers*.”
*In 2019 the investment programme was delivered at £71m cheaper than peers according to external benchmarks.