Investment Statement – Matthew Algie & Company Limited Pension & Assurance Scheme

This Investment Statement sets out the principles governing decisions about investments for the Matthew Algie and Company Limited Pension & Assurance Scheme (“the Scheme”) and meets the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005, and relevant amendments. The Statement is reviewed at least every three years or more frequently as appropriate.

The Scheme’s investment strategy is derived from the Trustee’s investment objectives. These objectives drive all planning, implementation and monitoring decisions.

The Trustee consulted with the principal employer, Matthew Algie & Company Limited, and received professional advice from its Investment Consultant, Isio Group Limited / Isio Services Limited.

Governance

The Trustee makes all major strategic decisions, including asset allocation and hiring or dismissing investment managers.

Where needed, the Trustee takes written professional advice. Isio, the Scheme’s investment adviser, is suitably qualified and experienced. Adviser remuneration may be fixed or time-based, depending on what provides best value for the Scheme.

Investment Objective

The Scheme closed to new members and stopped future benefit accrual on 31 August 2010.

The primary objective is to provide pension and lump-sum benefits for members, as well as benefits for dependants on death either before or after retirement.

The Scheme aims to achieve an investment return around 2.5 percent per year above the return on UK Government bonds, based on Isio’s central assumptions as at 30 June 2020. Further details on expected returns are normally included in Appendix A.

The medium-term objective is to reach and maintain 100 percent funding on a technical provisions basis, consistent with covenant strength and acceptable investment risk.

The Trustee and employer have agreed a long-term objective of reaching full funding on a “Gilts plus 0.5 percent” basis by 2028. As funding improves, investment risk will be reduced to increase certainty of reaching this target. The ultimate goal is to secure all Scheme benefits through an insurance buy-out.

Funding positions are monitored regularly and formally reviewed at each triennial valuation or as otherwise required.

Investment Strategy

The Trustee considers and manages risk holistically when determining investment strategy. Factors taken into account include the nature and duration of the Scheme’s liabilities, risks of different asset classes, impacts on required employer contributions, and the strength of the employer covenant.

The Trustee recognises that investment strategy carries risk, particularly the risk that assets and liabilities behave differently. This is monitored regularly. Risk is managed through investing in assets expected to outperform liabilities over the long term and through diversification to reduce volatility.

The Scheme’s assets are predominantly invested in regulated markets.

Investment Management Arrangements

The Scheme currently uses three investment managers, all regulated under the Financial Services and Markets Act 2000.

Day-to-day investment decisions are delegated to these managers through formal agreements. These decisions include selecting, holding and selling investments, considering financially material factors, exercising voting rights, and carrying out engagement activity.

The Trustee monitors each manager’s policies and performance targets. Managers are expected to follow the principles in this Statement as far as reasonably practicable.

Because the Scheme invests in pooled funds, custody of assets is arranged by each investment manager.

Financially Material Considerations Including ESG

The Trustee considers financially material factors such as environmental, social and governance (ESG) issues, including climate change, when determining investment strategy. These factors are believed to be reflected in the expected risk and return of asset classes used by the Scheme.

As investments are held through pooled funds, the Trustee cannot directly influence ESG policies of underlying companies, but expects fund managers and the Investment Consultant to take account of financially material considerations.

The Trustee only appoints managers that are signatories to the UN Principles for Responsible Investment or equivalent standards. ESG and responsible investment policies form part of manager selection and ongoing review.

The Trustee monitors financially material considerations by receiving ESG assessments from advisers, requesting ESG policy information from managers, and obtaining training where required.

If a manager does not sufficiently consider financially material factors, this will be taken into account when deciding whether to retain them.

Stewardship

Voting rights and other shareholder rights are exercised by the Scheme’s investment managers in the best financial interests of members.

Managers are expected to engage with companies, particularly on ESG issues, where doing so may improve long-term financial outcomes. The Trustee reviews managers’ voting and engagement activity with support from advisers.

If engagement policies are not appropriate, the Trustee will work with managers to improve alignment. If this does not succeed, the Trustee may reconsider the appointment.

The Trustee expects managers to adhere to the UK Stewardship Code where appropriate.

Monitoring and Engagement with Investment Managers

The Trustee regularly monitors and engages with the Scheme’s investment managers across several areas.

Performance, strategy and risk are reviewed through quarterly reports from advisers. Additional engagement occurs if investment strategy changes significantly, if risk levels rise beyond expectations, or if managers underperform against objectives.

Environmental, social and governance factors are monitored through annual stewardship and engagement reports from managers and through ESG assessments from advisers. Additional engagement occurs if managers fail to follow their stated policies or do not meet the Trustee’s expectations.

The Trustee works with managers to improve alignment where necessary, and may consider termination if improvements are not sufficient.

Realisation of Investments

The Trustee maintains a bank account for daily cash-flow needs.
Most Scheme investments can be realised quickly if required.

Additional Voluntary Contributions (AVCs)

AVCs are invested with LGIM in funds selected by the Trustee. These AVC options have been closed to new contributions since 1 June 2006.

Approval

Agreed as final version on behalf of Dalriada Trustees Limited as Trustee of the Matthew Algie and Company Limited Pension & Assurance Scheme.
Date: 28 September 2020

Amendment history:
First Amendment – June 2004
Second Amendment – February 2008
Third Amendment – February 2016
Fourth Amendment – September 2019
Fifth Amendment – September 2020

Appendix B – Risks, Financially Material Considerations and Non-Financial Matters

The Trustee has considered a range of risks and has adopted an integrated risk management approach.

Investment Risk
Risk that the Scheme’s position worsens because assets underperform. Managed by setting achievable objectives and diversifying investments.

Funding Risk
Risk that assets are insufficient to meet liability cash flows. Managed through actuarial valuations, investment strategy reviews and an appropriate journey plan.

Covenant Risk
Risk that the employer cannot support the Scheme. Managed by aligning strategy with employer covenant strength.

Interest Rate and Inflation Risk
Mismatch risk arising from economic movements. Approximately 72 percent of liabilities (on a flat gilts basis) are hedged for interest rate and inflation movements.

Liquidity Risk
Risk of insufficient cash being available when required. Managed by maintaining enough liquid assets to pay benefits and support collateral needs.

Market Risk
Losses due to general market performance. Managed through diversification and removing unrewarded risks.

Credit Risk
Risk of default on debt investments. Managed through diversified credit exposures and appointing managers who assess yield relative to default risk.

Environmental, Social and Governance (ESG) Risk
Risk that ESG factors affect investment performance. Managed by appointing managers with strong ESG frameworks, engagement processes, reporting standards and UN PRI involvement. ESG is considered part of the long-term investment process.

Currency Risk
Risk of currency fluctuations affecting asset values. All currency risk is hedged on contractual income assets, and around half of currency exposure on equities is hedged.

Non-Financial Matters
Member ethical or personal views are not considered in selecting, retaining or selling investments.

Appendix C – Policy on Investment Manager Arrangements

Alignment with Trustee Policies
The Scheme invests in pooled funds, so managers cannot fully tailor strategies. The Trustee selects pooled funds aligned with Scheme objectives. Annual fees incentivise managers to meet fund objectives.

Medium- and Long-Term Decision Making
Manager performance is reviewed relative to long-term objectives. Engagement and voting activity are monitored annually. The Trustee does not incentivise managers based on non-financial factors.

Performance Evaluation and Remuneration
Performance is reviewed net of fees to ensure accuracy. Evaluations are based on the manager’s stated time horizon, typically three to five years. Fees are reviewed annually to ensure competitiveness.

Portfolio Turnover Costs
The Trustee does not monitor turnover costs directly but recognises they are inherent in active management. Turnover costs are indirectly reflected in net performance. No turnover targets are set due to differing investment styles.

Duration of Manager Arrangements
Closed-ended or locked-in funds are selected with due regard to Scheme objectives and liquidity needs.
Open-ended funds are reviewed periodically to assess ongoing suitability.