15 Pension Protection Fund Responsible Investment Report 2021/22 Our investment approach and incorporating ESG Our investment objectives How the fund is managed Asset allocation of the PPF portfolio Regional breakdown of the PPF portfolio The PPF portfolio is currently managed to achieve two We manage around half of our assets in-house through a Equity 10.4% UK 62.4% long-term objectives: team of portfolio managers across UK LDI hedging strategies, Global Credit 2.5% North America 14.6% 1 hybrid assets and strategic cash. The remaining 50 per EMD 4.2% Europe ex-UK 10.0% • Grow assets at cash + 1.5 per cent annualised over the cent is managed by external fund managers across a range Absolute Return 5.8% long term of vehicles, including segregated accounts, pooled funds, Asia Paci昀椀c 3.4% • Allocate a risk budget to assets in our investment closed-end funds, co-investments and passive instruments. Cash 6.4% Middle East Africa 1.7% universe as e昀케ciently as possible, while ensuring that Alt Credit 5.0% Asia Emerging 2.2% the interest-rate and in昀氀ation risks within our liabilities We have a highly diversi昀椀ed portfolio of ‘growth’ assets that Private Equity 4.0% Latin America 1.0% are fully hedged through our Liability Driven Investment are expected to deliver returns in excess of the risk-free Infrastructure 3.0% Europe Emerging 0.8% (LDI) strategy. rate of return. As well as investing in public market assets, we take advantage of the long-term nature of the fund by Property 5.8% Others 4.0% The Board sets a risk budget for the Investment team accessing illiquidity premia through private markets. We Farmland & Timber 2.1% which drives the process for determining our strategic take a considered approach when implementing exposures UK Credit 11.8% asset allocation. The non-LDI (growth) part of our portfolio to asset classes, some of which are non-traditional, to Gilts 38.9% is a diversi昀椀ed portfolio of public and private assets with ensure that we optimise our risk budget. allocations that are optimised against the risk budget. This Geographically, a signi昀椀cant portion of the portfolio is approach is taken to ensure that we can pay cash昀氀ows to invested in UK assets (over 60 per cent), which is largely our members as they fall due. driven by our internally-managed UK LDI, hedging and cash assets. The next largest regional allocations are to North America and Europe ex-UK. We manage around half of Measuring our performance our assets in-house through We measure the performance of our investment portfolio a team of portfolio managers. over 昀椀ve-year rolling targets, which we consider to be an appropriate investment time horizon to deliver the The remaining 50 per cent is cash昀氀ows required to our members. This long-term perspective aligns well with our stewardship expectations, managed by external fund as we recognise that engagements with companies and managers across a range other issuers can take a number of years to bear fruit. of vehicles. Considering the needs of bene昀椀ciaries in our stewardship process and activities As mentioned, we have built our responsible investment and stewardship processes to safeguard sustainable returns in the long term, in line with the long-term nature of our liabilities and our investment horizon. We also consider other stakeholders such as our levy payers, when striving to generate these returns in a sustainable manner, and consult with our levy payers on an ongoing basis regarding our funding strategy. 1 Investments which possess attributes of both liability hedging and growth assets.