Talking head: The Pension Protection Fund's Marcus Bishop looks at the crucial risk management and reporting building blocks of its investment strategy.
The ‘how’ has been equally important. There has therefore been a significant focus on the activities that support the investment team.
The PPF remains on track to meet its 2030 target as articulated in our funding strategy which we update annually. We have had strong returns in recent years, despite the uncertain environment, and are aiming to continue with this same investment strategy.
Greater complexity and scale should not therefore mean weaker management of risk
As our strategic plan says, by next March, where the opportunities are available, we will have made substantial progress in adding additional illiquid assets to our portfolio, and the team will have reviewed our model for investment operations.
One of the PPF’s three strategic objectives is to “operate within a high-calibre framework of risk management”. Overall, our risk budget has been lower than that for an equivalent pension scheme – reflecting the fund’s unique nature. As the growth in assets under management brings increasing diversity and complexity of assets, more sophisticated models are required to manage risk.
While the PPF’s headline asset allocation or the appointment of new managers attracts most attention, the less heralded areas such as risk management and reporting being reviewed are integral to the fund’s success.
This includes the work some of my team do to support investment colleagues. In early June we launched the latest phase of our Raise project. The purpose of this project is to procure and implement a solution that delivers comprehensive risk and performance metrics on our assets.
This represents an upgrade from the information we currently collect, enabling us to more actively monitor and manage our investment risks. The project will apply to all the PPF’s assets and is being developed from the outset to support our continued expected growth.
While Raise is about strengthening part of the PPF’s range of risk management tools, it is not just about a system. As in other areas, we have built a strong team able to use those tools.
Through bringing in best practice from across the financial services sector, not just the pensions industry, the risk practice team is embedded in the investment process.
Greater complexity and scale should not therefore mean weaker management of risk. Good information on the risks to which the PPF is exposed, how those are changing and the risks of opportunities being considered ultimately means improved investment performance to benefit of both members and levy-payers.
Marcus Bishop is risk practice leader at the Pension Protection Fund
