Jonathan Gorrie, Associate Principal, Portfolio Management, BT Pension Fund, discusses strategy during COVID, ESG investment process and the role real assets could play in the recovery.
What is your overall investment strategy?
We invest based on a number of macro-level investment beliefs defined by our Trustees and the senior investment team. We are a relatively mature scheme, with 200,000 members and 80,000 deferred members, so an important theme at the moment is an increasing focus on cash flow aware investments which generate income to match our outgoings. We expect these to grow as a proportion of our portfolio over the next few years as our deferred members retire and we de-risk.
What has been your strategy during the COVID-19 pandemic?
We are already quite conservative in the way we approach our portfolio and are pleased it has been resilient during this crisis. In fact, our portfolio has performed very robustly. Rather than scrambling to put out fires, we have been able to ride out the storm and are now thinking hard about “how do we position ourselves to take advantage of opportunities coming out of this and what do we do next?”
A meaningful part of our strong performance was down to factors consistent with our focus on de-risking and sourcing high quality matching assets. For example, in the early days of the crisis we moved selectively into fixed income from equities, because we thought technical factors like short term illiquidity had pushed down valuations in attractive sectors. At all times we work with our investment managers to make informed and collective decisions and to respond quickly to new opportunities.
How do you view real assets in light of the current crisis?
We are broadly positive on infrastructure, which has shown good resilience, and even though some transport assets have been more challenged we expect these to pull through satisfactorily. Infrastructure can lend itself well to our need for long-dated, yielding assets and often also has attractive ESG characteristics. However, we will continue to manage our portfolio selectively as there is a lot of capital chasing transactions in this space at the moment.
Our property exposure is larger and similarly has performed very satisfactorily. We had already focused away from retail – and there are now question marks around offices as well – we certainly see a role for property in the future.
For example, income strips and long-income real estate appeal to us right now, and we think our scale and experience in this arena will stand us in good stead.
How important is ESG to your investment process?
Environmental, social and governance issues are absolutely fundamental to us. Some of the long-term trends around climate change or weaker governance can create material risks for the scheme and therefore for our pensioners, so we are vigilant to their impact and want to play our part in mitigating their effect.
We are renowned for taking a stance over decades on issues of governance and sustainability, and this means that ESG has been core to our DNA for a very long time.
ESG can’t just be an add-on or a ‘nice to have’.
For us it’s important that our commitments are ambitious and pragmatic and not just platitudes. When we set goals – for example around carbon emissions – they must have a real world impact. ESG can’t just be an add-on or a ‘nice to have’.
How do you view the economic picture over the next year?
It’s obviously very difficult to predict; anyone with a firm view is very brave. We are planning for different scenarios, but have to be alive to all eventualities.
But we are probably less concerned about missing out on a V-shaped recovery than continuing to protect the financial position of the scheme and ensure we protect our members’ benefits. Real assets will continue to play a big part for us in this.
