Investments

The fund collects contributions from employers and scheme members. It invests this money to build up sufficient assets to pay members' pensions as they fall due. 

As employee contributions are set by statute, any deficit in the fund's funding position must be recovered through investment returns or employer contributions. As such, generating investment returns is a key element in ensuring the fund can maintain employer contribution rates at a sustainable level. The LGPS is an open defined benefit scheme, meaning pension payments will need to be made more than 50 years in the future. Therefore, the fund needs to adopt a long-term investment approach. 

Investment beliefs

A set of investment beliefs underpins the fund's decisions. Setting the Strategic Asset Allocation (SAA), including ensuring appropriate levels of diversification, is the investment decision with the greatest impact on the fund's investment performance. There is a direct relationship between the amount of risk taken and the expected return. 

The fund will need to make payments to members far into the future. We need to invest for the long term and engage with the companies in which we invest to understand their governance, policies, and operations. This long-term approach aligns with the belief that investing responsibly and investment performance are not mutually exclusive. 

We have identified climate change as the single most significant long-term risk to investment returns. Therefore, we take an active approach to mitigating and adapting to the risks and opportunities it presents.

Managing fees and costs when considering whether to invest is important, but the overall net return is the primary consideration.

Investment strategy

The LGPS regulations require the fund to produce an updated Investment Strategy Statement (ISS) every 3 years. The strategy sets out the fund's high-level investment approach, including:

• investment objectives
• management of investment risks

We designed the investment strategy to strike an appropriate balance between risk and return. Our strategy considers all relevant factors, including the:

• return required to achieve and maintain an appropriate funding level
• burden on employer contributions

Asset allocation

A key part of the ISS is the Strategic Asset Allocation (SAA). We invest in a wide range of assets. This diversification is one of the key ways we reduce risk. We invest across a range of asset classes that are not highly correlated with one another. If one type of investment underperforms, we have a range of other investments, meaning the fund is more likely to achieve the returns it needs to pay pensions.

The Oxfordshire Pension Fund’s current Strategic Asset Allocation