Shifting Gears: LDI Allocation Rebalanced for Enhanced Collateral Efficiency
For the fiscal year ended March 31, 2025, the RS Group Pension Scheme significantly adjusted its Liability Driven Investment (LDI) allocation. The target interest rate and inflation hedge ratios were increased from 85% to 90% (measured on a gilts +0.4% p.a. basis). This change was driven by the introduction of new flexibilities by LGIM in 2024, allowing for enhanced collateral efficiency. Consequently, the Scheme’s target allocation to LDI was formally updated in the Statement of Investment Principles (SIP) in April 2025, reflecting a lower required LDI allocation. Concurrently, the target allocation to Short Dated Credit was increased. The actual allocation to Matching assets (including LDI) decreased from 63.1% in FY2024 to 53.3% in FY2025, while Defensive Growth assets increased from 36.9% to 44.8% over the same period. This strategic shift aims to optimize the Scheme’s hedging strategy and collateral management. (Source: Investment Report, page 14; Statement of Investment Principles, page 15)
New Horizons: Short Dated Credit Mandate Introduced
In a notable development during the fiscal year ended March 31, 2025, the RS Group Pension Scheme introduced a new allocation to the LGIM Net Zero Short Dated Credit (SDC) Fund. This new mandate replaced the Newton Sustainable Global Dynamic Bond Fund, which was terminated during the year. The rationale for this change is to enhance collateral efficiency and align with the Trustee’s comprehensive collateral management framework. The LGIM Short Dated Credit pooled investment vehicle is daily priced and traded. (Source: Investment Report, page 17)
Manager Transition: Newton Out, LGIM In for Short Dated Credit
Effective April 16, 2024, Newton Investment Management ceased to be an investment manager for the RS Group Pension Scheme. This change coincided with the termination of the Newton Sustainable Global Dynamic Bond Fund and the introduction of the LGIM Net Zero Short Dated Credit (SDC) Fund. The transition reflects the Scheme’s strategic decision to enhance collateral efficiency and align with new flexibilities offered by LGIM. (Source: Trustee and Advisers, page 4; Investment Report, page 17)
ESG Evolution: Climate Targets Set for Credit Holdings
For the fiscal year ended March 31, 2025, the RS Group Pension Scheme established specific climate targets for its buy and maintain credit and short dated credit holdings. These targets include a 50% reduction in greenhouse gas emissions by 2030 and a 100% reduction by 2050, measured as the reduction in carbon emissions intensity (tonnes CO2/$m revenues), relative to the position as at December 31, 2019. Additionally, the Scheme aims for alignment with an implied temperature rise of 2.0°C above pre-industrial levels from December 31, 2025, and 1.5°C above pre-industrial levels from 2030 onwards. The Trustee believes this commitment demonstrates strong alignment with better economic outcomes for investors. While no such targets have been set for illiquid credit, secured finance, and multi-asset credit holdings due to asset class characteristics and data limitations, the Trustee continues to engage with managers on climate change risk integration. (Source: Investment Report, page 17)
Stewardship Refinement: ESG Policy Document Updated
During the fiscal year ended March 31, 2025, the Trustee of the RS Group Pension Scheme updated its standalone ESG policy for the Scheme. This update followed an ESG beliefs survey conducted in April 2024, which aimed to reaffirm the Trustee’s ESG beliefs and incorporate ongoing improvements in market practice. The updated document establishes additional processes to ensure investment decisions align with the Trustee’s beliefs. (Source: Investment Report, page 17; Implementation Statement, page 43)
SIP Evolution: Investment Strategy and Hedge Ratios Reflected
Following the Scheme year-end, in April 2025, the Statement of Investment Principles (SIP) was further updated to reflect changes to the target allocation and interest rate and inflation hedge ratios. This update formalizes the strategic adjustments made during the fiscal year ended March 31, 2025, including the increase in interest rate and inflation hedge ratios from 85% to 90% and the corresponding adjustments to asset class targets. (Source: Investment Report, page 15)
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