The TfL scheme underperformed in 2023-24 but retained its longer-term outperformance record in relation to its benchmark.
The scheme posted a 6.4% investment return for the 2023-24 financial year, compared to an 11.5% gain from its bespoke benchmark.
Several equity and bond managers employed by the TfL scheme underperformed their respective benchmarks during the year, the annual report showed. However, the scheme’s substantial allocation to private markets detracted from performance as they lagged a fourth-quarter rally in listed equities.
The scheme had 44% of its portfolio invested in alternatives as of 31 March, including infrastructure, private equity, private credit, real estate and hedge funds.
Longer term, however, the scheme’s performance has beaten its benchmark comfortably. Over five years, the scheme averaged 6.9% a year compared to 4.8% from the benchmark.
Despite the underperformance, the scheme’s assets swelled to just over £15bn as of 31 March, up from £14.1bn a year earlier.
The TfL Pension Fund kept its asset allocation largely unchanged over the year. Its investment in a “hedge fund completion programme”, overseen by Cambridge Associates, increased from 2% to 4.1% of the overall portfolio, equivalent to approximately £615m as of 31 March 2024.
A global equities mandate run by Ardevora Asset Management, worth approximately £380m in March 2023, was wound up during the year as the asset manager closed to external investors and returned money to clients.
This was reflected in the scheme’s cash holdings, which grew from 1.6% to 5.7% of the portfolio, the equivalent of around £855m at the end of the 2023-24 financial year.
In March, the TfL scheme announced the purchase of an onshore wind farm asset from DIF Capital Partners for an undisclosed amount.
ESG performance
In her introduction to the annual report, TfL Pension Fund chair Maria Antoniou noted that the scheme was increasing its focus on environmental, social and governance (ESG) considerations.
The trustee board’s committees were responsible for “a growing and vastly more complex portfolio of investments in different asset classes, sectors, and regions with added emphasis on sustainability and ESG matters”, she said.
Antoniou added: “The trustee directors are spending a much greater proportion of time in the meetings to understand and challenge our managers on the approach and actions they are taking to progress the fund’s sustainability and net zero commitments.”
During the year, the scheme aligned its corporate bond portfolio with its net zero ambition and it “remains on track” to hitting its aim of reducing emissions by 55% by 2030. It aims to have cut 100% of its emissions by 2045.
