F.Hinds Pension Fund: Statement of Investment Principles

If you are thinking of transferring your benefits out of the Fund for any reason, you should consult a professional adviser, such as an independent financial adviser, before taking any action. Pension Scams are a significant risk to members who wish to transfer their benefits from the Fund and you should ensure that you are taking all steps to minimise this risk. To identify measures that should be taken please refer to www.pensionwise.gov.uk/.
Statement of Investment Principles – September 2020 and addendum November 2022

The Trustees of the F.Hinds Pension Fund (“the Fund”) have drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005, and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 and 2019. The Statement is intended to affirm the investment principles that govern decisions about the Fund’s investments. In preparing this Statement the Trustees have consulted F.Hinds Limited (“the Employer”) on the Trustees’ investment principles.

Governance

The Trustees make all major strategic decisions including, but not limited to, the Fund’s asset allocation and the appointment and termination of investment managers. The process for making investment decisions is as follows:

- Identify appropriate investment objectives
- Agree the level of risk consistent with meeting the objectives
- Implement an investment strategy and investment manager structure in line with the level of risk and objectives agreed.

When making such decisions, and when appropriate, the Trustees take proper advice. The Trustees’ investment consultants, Capita, are qualified by their ability in and practical experience of financial matters, and have the appropriate knowledge and experience to provide such advice.

Investment Objectives

The Trustees are required to invest the Fund’s assets in the best interest of members, and their main objectives with regard to investment policy are:

• To achieve, over the long term, a return on the Fund’s assets which is consistent with the assumptions made by the Scheme Actuary in determining the funding of the Fund
• To ensure that sufficiently liquid assets are available to meet benefit payments as they fall due
• To consider the interests of the Employer in relation to the size and volatility of the Employer’s contribution requirements

The Trustees understand, following discussions with the Employer, that it is willing to accept a degree of volatility in the company’s contribution requirements in order to reduce the long-term cost of the Fund’s benefits.

Risk Management and Measurement

The Trustees are aware of and pay close attention to a range of risks inherent in investing the assets of the Fund. The Trustees believe that the investment strategy provides for adequate diversification both within and across different asset classes. The Trustees further believe that the current investment strategy is appropriate given the Fund’s liability profile. The Trustees’ policy on risk management is as follows:

• The primary investment risk faced by the Fund arises as a result of a mismatch between the Fund’s assets and its liabilities. This is therefore the Trustees’ principal focus in setting investment strategy, taking into account the nature and duration of the Fund’s liabilities.
• The Trustees recognise that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Fund’s liabilities as well as producing more short-term volatility in the Fund’s funding position. The Trustees will take advice on the matter and (in light of the objectives noted previously) consider the implications of taking different levels of investment risk.
• The Trustees recognise the risks that may arise from the lack of diversification of investments. Subject to managing the risk from a mismatch of assets and liabilities, the Trustees aim to ensure the asset allocation strategy in place results in an adequately diversified portfolio. Due to the size of the Fund’s assets and recognising the need to diversify, investment exposure is obtained via pooled vehicles.
• The documents governing the managers’ appointments include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the Fund.
• The Trustees recognise that, where appropriate, the use of active management involves a risk that the assets do not achieve the expected return. However, they believe this risk is outweighed by the potential gains from successful active management, in particular in regions or asset classes where this potential is greater than others. Therefore, the Fund’s assets are managed through a mixture of active and passive management which may be adjusted from time to time.
• The safe custody of the Fund’s assets is delegated to professional custodians via the use of pooled vehicles.

Should there be a material change in the Fund’s circumstances, the Trustees will review whether the current risk profile remains appropriate.

Given their investment objectives the Trustees are happy with the asset allocation detailed in the table below as at March 2018:

Asset allocation excludes investment in direct property and cash held on deposit. The Trustees will monitor the Fund’s actual asset allocation periodically and decide on a course of action. This may involve redirecting cash flows, a switch of assets, or taking no action. The Trustees will take into account advice from the Investment Consultant prior to making any decision. Further details on investment funds and control ranges can be found in the Appendix.

Expected Return

The Trustees expect the return on assets to be consistent with the investment objectives and investment strategy outlined above. The Trustees expect to generate a return, over the long term, of circa 2.5% per annum, net of expenses, above a portfolio of long-dated UK Government bonds – which are considered to change in value in a similar way to the Fund’s liability value. This return is a “best estimate” of future returns that has been arrived at given the Fund’s long term asset allocation and in the light of advice from the investment consultant. The Trustees recognise that over the short term performance may deviate significantly from this long term expectation. This “best estimate” will also generally be higher than the estimate used for the actuarial valuation of the Fund’s liabilities. For actuarial valuations a more prudent estimate of returns will generally be used, as agreed by the Trustees based on advice from the Scheme Actuary.

Investment Mandates

The Trustees have selected BlackRock, Inc. (“BlackRock”), Legal & General Investment Management Ltd (“LGIM”) and Newton Investment Management Limited (“Newton”) as the appointed investment managers to manage the assets of the Fund. The Investment Managers are regulated under the Financial Services and Markets Act 2000. The Trustees have rolling contracts with their Investment Managers. The Trustees monitor the performance of their Investment Managers on at least a bi-annual basis. This monitoring is contained in a report provided by their investment consultant and reviews performance over 1, 3 and 5 years against the appropriate benchmark. The Trustees have set performance objectives, including time periods, consistent with the investment strategy set out in this statement.

Investment Manager Remuneration

The Trustees monitor the remuneration, including incentives, that is paid to their Investment Managers and how they reward their key staff who manage client funds, along with how the pay and incentives motivate employees who manage client funds. As part of the monitoring that the Trustees carry out on an annual basis, they should ensure that this policy is line with their investment strategy.

Investment Manager Philosophy and Engagement

The Trustees monitor the Investment Managers’ processes for assessing the businesses they invest in, and whether business performance over the medium to long-term involves appropriate incentives and a holistic look beyond mainly accountancy measures. The Trustees are conscious of whether the Investment Managers are incentivised by the agreement with the Trustees to engage with the investee business and to what extent any engagement focuses on improving medium to long-term performance.

Investment Manager Portfolio Costs

The Trustees will monitor costs of buying, selling, lending and borrowing investments and they will look to monitor the costs breakdown annually, as long as the Investment Managers provide these costs using the Cost Transparency Initiative template. They will also ensure that, where appropriate, their Investment Managers monitor the frequency of transactions and portfolio turnover. If there are any targets then they will monitor compliance with these targets.

Environmental, Social and Governance (“ESG”) Considerations

The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Scheme’s members. The Trustees believe that ESG considerations are an integral part of this duty.

The Trustees have elected to invest in pooled funds and cannot, therefore, directly influence the ESG policies, including the day-to-day application of voting rights, of the funds in which they invest. However, the Trustees believe that the effective integration of ESG policies, by investment managers into their funds’ investment philosophies and processes, can contribute to the generation of good investment returns. The Trustees believe that the effective integration of ESG policies typically involves taking financially material considerations, including but not limited to ESG considerations (including climate change), into account when selecting investee companies.

Consequently, the Trustees expect the Scheme’s Investment Managers to have effective ESG policies (including the application of voting rights) in place, and look to discuss the investment managers’ ESG policies with them when the managers attend Trustee meetings.

Where the pooled funds are managed on a passive basis, decisions regarding the selection, retention and realisation of investments are only made in order to ensure the efficient tracking of indices, and ESG considerations are not taken into account.

The Trustees are keen that their managers can explain when, and by what practical methods, the Investment Managers monitor and engage with relevant persons about relevant matters in this area. They will be liaising with their managers (including their passive managers) to obtain details of the voting behaviour (including the most significant votes cast on the Trustees’ behalf and proxy voting services have been used) and will be reporting annually on this.

Employer-Related Investments

The Trustees’ policy is not to make any new direct employer-related investments as defined in the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005.

The Fund directly owns two properties, one of which the Employer leases from it on commercial terms. The investment in the employer related property pre-dates the Pensions Act 1995 and is an immaterial element of overall investment assets.

Fee Structures

The Investment Managers are paid a management fee on the basis of assets under management. The investment consultant is paid on a project basis, which may be a fixed fee or based on time cost, as negotiated by the Trustees in the interests of obtaining best value for the Fund.

Review of this Statement

The Trustees will review this Statement at least once every three years and without delay after any significant change in investment policy. Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustees reasonably believe to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.

DRH Hinds / NA Hinds
On behalf of the Trustees / On behalf of the Employer
21st September 2020

The Trustees have appointed the Investment Managers to manage the assets of the Fund. The Investment Managers are regulated under the Financial Services and Markets Act 2000. Their mandates are set out below:

Asset allocation excludes investment in direct property and cash held on deposit.

Introduction

This Addendum to the September 2020 Statement of Investment Principles (the “Addendum”) has been approved by the Trustees of the F Hinds Pension Fund (the “Fund”) in accordance with Section 35 of the Pensions Act 1995, as amended, and the Occupational Pension Plan (Investment) Regulations 2005.

In preparing this Addendum the Sponsoring Employer (the “Company”) has been consulted.

Changes to the Statement of Investment Principles

At the Trustee meeting on 20 June 2024, the Trustees confirmed that it is their intention to simultaneously protect the buyout funding level whilst using the surplus on this basis to retain some equity exposure.

Following discussion with their investment advisers and the sponsoring employer, the Trustees of the F Hinds Pension Fund decided to make changes to the Fund’s target asset allocation.

It was decided to retain the LGIM index equity holding to broadly back the estimated buyout surplus (on a Gilts flat basis), and notionally ring-fence this holding from the Fund’s other assets.

It was also decided to restructure the remaining non-equity assets that are backing the estimated buyout liabilities (on a Gilts flat basis) to achieve the following objectives:

1. To continue to target a return of Gilts + 0.75% p.a. on the non-equity holdings.
2. Target interest rate and inflation hedge ratios c.100% of the liabilities valued on a Technical Provisions basis (equivalent to broadly 95% on a buy-out basis).
3. Build a cashflow matching focused portfolio to help meet the Fund’s liability outgo over the next 5 to 10 years using Buy & Maintain Credit funds.
4. Increase the Fund’s allocation to investment grade corporate bonds on the basis that it is expected to provide a return over Gilts over the longer-term and provides a degree of hedging against movements in insurance pricing caused by changes in investment grade credit spreads over Gilts.
5. Retain sufficient cash like holdings within the portfolio to meet the Fund’s immediate liquidity needs.

The new target asset allocation based on 31 March 2024 asset values is set out in the table below: