Schroders has executed a GBP2.6 billion equity risk management strategy for the South Yorkshire Pensions Authority (SYPA), understood to be one of the largest of its type undertaken in the Local Government Pension Scheme space.
The strategy has been co-designed by Schroders’ Portfolio Solutions team with the aim of mitigating losses for SYPA in the event of a significant decline in equity markets.
Over the last few years SYPA has seen significant increases in its portfolio and was keen to manage its funding position through to the next valuation.
Schroders worked closely with SYPA and its consultant Mercer to deliver this ‘put spread collar’ approach. While maximising downside protection was the core focus, the strategy was designed to manage total cost and to maintain as much upside potential as possible for SYPA.
Schroders also designed and set up a bespoke pooled fund for the strategy, a move which has minimised SYPA’s administrative and governance requirements.
Andrew Connell, Head of Portfolio Solutions Group, Schroders, says: “The scope and complexity of this mandate emphasises the commitment of Schroders’ Portfolio Solutions team to work with clients to deliver bespoke strategies in order to meet their investment needs.
“We were very pleased to have been selected to work closely with SYPA and Mercer to design and implement the strategy quickly and efficiently.”
George Graham (pictured), Fund Director of the South Yorkshire Pensions Authority, says: “The rise in equity markets in recent years presents South Yorkshire, in common with many pension funds, with a new set of challenges to reduce the risk of negative market impacts while maintaining a focus on growth. This solution helps us achieve this in a cost effective and transparent way.”
Paul Middleman, Mercer Fund Actuary, says: “We were delighted to be asked by SYPA and work with Schroders to design a strategy that could help protect SYPA against equity losses, following the significant gains it has achieved in the last few years. This puts the fund in a strong position going forward in terms of more effectively managing risk and the funding requirements.”