Investment Strategy Statement
Lancashire County Council (“LCC”) is the administering authority of the Lancashire County Pension Fund (the “Fund”).
The Investment Strategy Statement (“the Statement”) has been prepared in accordance with DCLG guidance on Preparing and Maintaining an Investment Strategy Statement (July 2017) and after taking appropriate advice. As set out in the Regulations, the Committee will review this Statement from time to time, but at least every three years, and revise it as necessary. Also, in the event of a significant change in relation to any matter contained in this Statement, changes will be reflected within six months of the change occurring.
The Regulations require all Administering Authorities to take “proper advice” when formulating an investment strategy.
In preparing this document and the overall investment strategy the Committee has taken advice from the LCPF Investment Panel (a panel of independent advisors appointed by LCC for the purpose of providing advice on pension related matters), the Lancashire Local Pension Board and the Local Pension Partnership Investment Limited which is a FCA regulated investment manager with specific expertise and regulatory permissions to provide advice on investments.
The Fund’s primary investment objective is to ensure that over the long term the Fund will have sufficient assets to meet all pension liabilities as they fall due. In order to meet this overriding objective the Committee maintains an investment policy so as to:
- Maximise the returns from investments whilst keeping risk within acceptable levels and ensuring liquidity requirements are at all times met;
- Contribute towards achieving and maintaining a future funding level of 100%; The Fund will use its influence as a large institutional investor to encourage responsible long-term behaviour.
Asset Allocation Framework
To pay benefits over time the Fund needs to generate a rate of return that is at least equal to the actuarial discount rate.
The starting point for considering asset allocation is a simple portfolio of bonds and equities. However, this basic portfolio does not maximise diversification and therefore risk adjusted return. In order to prudently diversify sources of risk and return, the Fund allocates capital across a wide variety of different asset classes. To be added to the portfolio, asset classes are first judged for suitability; they have to be well understood by the committee, consistent with the Fund’s risk and return objectives; and they have to make a significant contribution to the portfolio by improving overall return and risk characteristics.
In addition, the new asset classes have to be less than perfectly correlated with equities and bonds, so that the portfolio benefits from increased diversification.
The fund has identified a total of eight asset classes that, combined, form the policy portfolio. The eight asset classes shown below have different exposures to economic factors (GDP growth and inflation) and combine different geographies and currencies. In assessing suitability the Committee has considered the respective return drivers, exposure to economic growth and sensitivity to inflation – each an important consideration, relative to the sensitivities of the Fund’s liabilities and managing risk