Investment strategy

NILGOSC sets its long-term investment strategy by taking into account the nature and timing of the Fund’s liabilities identified through the triennial actuarial valuation and its investment aims and objectives.

In setting the Fund’s investment strategy, NILGOSC first considers the lowest risk strategy that it could adopt in relation to the Scheme’s liabilities. The investment strategy is designed to achieve a higher return than the lowest risk strategy while maintaining a prudent approach to meeting the Scheme’s liabilities.

These considerations drive decisions over asset allocation.  NILGOSC reviews the Fund’s asset allocation every three years. In determining its asset allocation, NILGOSC considers:

  •  A full range of asset classes
  •  The risks and rewards of a range of asset allocation strategies
  •  The suitability of each asset class
  •  The need for appropriate diversification

The Fund’s investments are diversified across various asset classes in order to increase the overall expected returns while reducing the overall level of risk.  A mixture of passive and active mandates are also used to capture the returns required to meet the Fund’s objectives.

The latest formal strategic review took place in October 2017 and culminated in a revised investment objective and asset allocation. The review was informed by the improved funding position identified by the 2016 valuation, together with advice from the investment advisor and scheme actuary on future investment and demographic expectations. The new investment objective has been effective since 1 April 2018 and a transition plan is underway which aims to implement all remaining asset allocation changes by the end of 2020. The revised strategy has reduced the proportion of the Fund invested in equities from over two-thirds to just over one-third and is reweighting the Fund towards fixed income going forward, as NILGOSC seeks to reduce investment risk as the Fund slowly matures. The reweighting of the Fund also led to a review of NILGOSC’s overall investment objective, which from 1 April 2018 was changed from CPI+5% to CPI+3.5%.

The transition has been undertaken over several phases. The first phase was completed in March 2018, with £827.8m transferred from active UK equity mandates to fund an increase in passive index linked gilts managed by Legal & General Investment Management (LGIM). The second phase took place during 2018/19, with the termination of three active mandates and a reduction in two more, in order to fund four new specialist Fixed Income managers with £2.2bn. The third phase of the transition necessitated the appointment of both a Global Property manager and a specialist Emerging Markets Equity manager. In February 2020, CBRE GIP was appointed to manage a £250m Global Property mandate, which is being gradually drawn over 12-18 months as suitable opportunities arise. Due diligence was delayed due to the pandemic, but in April 2021, William Blair was appointed to manage an Emerging Market mandate of £235m, which was funded in May 2021. Further investment in infrastructure is required to reduce equity holdings to the strategic target of approximately 34% of the Fund, although two infrastructure commitments were made during the year. In February 2021, €50m was committed to a renewables infrastructure fund managed by Copenhagen Infrastructure Partners (CIP) and in March 2021, a further €45m was committed to the Antin Mid Cap fund. Neither manager had drawn any capital before year end.

The standard targets and benchmark indices for each asset class held by the fund as at 31 March 2021 are shown in the following table:

Asset ClassTarget/Benchmark Indices
(Outperformance shown per annum)
UK Equities*FTSE All Share
Overseas EquitiesMSCI All Countries World + 3%
FTSE All World Index + 3%
FTSE All World North America Index
FTSE North America GBP Hedged
FTSE All World Developed Europe ex UK Index
FTSE All World Developed Europe ex UK Index hedged
FTSE Japan Sterling hedged
FTSE All World Developed Asia Pacific ex Japan
FTSE All World All Emerging
CashSterling Overnight Index Average (SONIA)
Index Linked Gilts
FTSE Actuaries UK Index-Linked Gilts Over 5 Years Index
Absolute Return Bonds
Sterling Overnight Index Average (SONIA) +2.5%
3 month GBP LIBOR + 3%
Multi Asset Credit
Merrill Lynch British Pound LIBOR 1-month Constant Maturity Index + 5%

To outperform the below composite benchmark by 2.5%:
33% JP Morgan EMBI Global (GBP hedged);
33% Bloomberg Barclays Global Aggregate Credit Index Ex Emerging Markets (GBP hedged); and
33% BofA Merrill Lynch BB/B Rated Developed Markets High Yield Constrained Index (GBP hedged)
Index Linked Property
RPI + 3%
Traditional Property
MSCI UK Quarterly Property Index + 1%
Global Property
Absolute Return of 5-7%
Private Rented Sector
6% Absolute Return
InfrastructureCPI + 3.5%

* UK equities under passive management, following termination of active manager in March 2021.