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23 December 2021

USS Investment Management update - December 2021

As 2021 draws to an end, it is desperately sad that we remain in the grip of the pandemic. These have been hard times for many, and we are conscious that across the world there are many who do not have access to vaccines, for whom this is even harder.

At USSIM, we seek to make the best investment decisions that we can in order to deliver your pensions in a sustainable manner. This is about balancing risk and return. We invest in equities and other growth assets as we seek higher returns, and we invest in fixed income (and in inflation-protected assets) in order to ensure that if things don’t go according to plan, we still can pay pensions.

Over the last year we have continued to expand our in-house Fixed Income & Treasury team. We have also built out our Private Markets team. Both of these areas are important as we look for investments that will deliver a good mix of long-term growth potential and also will hedge against the risks of higher inflation in the future.

Our Fixed Income team, which invests in debt issued by companies as well as inflation-protected bonds issued by governments, has grown from 15 to 22 people. Our Private Markets team now numbers nearly 60 individuals and invests in private assets that are not available in the public markets. This includes investments in private companies as well as in property assets, which require sophisticated skills to buy and manage.

By way of example, in recent times our Fixed Income team has invested £100m in inflation-linked debt issued by Severn Trent Water. Meanwhile on the private side we have made a number of notable new investments in the last year, including a c.£200m investment to buy 50% of Bruc Energy, a developer of solar photovoltaic (PV) farms based in Spain. More recently, USS has increased its investment in Thames Water to nearly 20% of the company.

Earlier this year we announced our ambition to be Net Zero (NZ) for greenhouse gases for our investments by 2050, if not before. We have appointed S&P Trucost to help us calculate our baseline carbon footprint across both the Retirement Income Builder (defined benefit) and the Investment Builder (defined contribution) sections of the scheme. We plan to introduce a climate “tilt” for some of our investments and this will kick-start this transition to NZ. We will soon have more to announce about our progress and the interim steps that will be necessary as we journey towards our goal.

We suspect that future returns on investments will be lower than they have been in recent times. But as a long-term investor, we think that we can help the companies in which we invest to build for the long-term. This includes helping them get ready for the low carbon (and no carbon) world which is coming. We believe that this long-term mindset is necessary as we seek to generate the returns that are needed in order to pay pensions. We will also maintain a strong focus on having a diverse range of investments; we still invest significantly in equities both here and abroad, and we will also continue to look for investments that will protect the scheme from difficult market environments.

What runs through all of our investment activity is our philosophy of investing responsibly. We have expanded our Responsible Investment team this year as we seek to ensure the investments that we make have high standards of Environmental, Social and Governance (ESG) embedded in them.

I look forward to updating on all our plans in 2022.

Nothing in this article should be construed as an offer, invitation or general solicitation to buy or sell any investments or securities, provide investment advice or to engage in any other transaction or service.