The Universities Superannuation Scheme (Ltd) (USS) boasts substantial assets, making it one of the UK’s largest pension funds. Last year, despite a 16% drop in total assets, USS reported a £7 billion surplus for the defined benefit scheme, a noteworthy achievement and a sign of resilience in performance.
Underpinning USS’s investment strategy is USS Investment Management (USSIM), a wholly owned subsidiary of the scheme trustee. USSIM, through its Investment Strategy and Advice (ISA) team, led by Mirko Cardinale, operates a unique framework. This framework emphasises a holistic assessment of performance, aligning with the multifaceted objectives of USS. It also strengthens the connection between risk management and the trustee’s risk appetite, ensuring a more consistent approach.
USSIM enjoys extensive delegation for strategic asset allocation, allowing for flexibility in its investment approach. The team employs quantitative analysis, layered with judgment and scenario analysis, rather than relying solely on optimisation models. Furthermore, USSIM’s focus on diversification and inflation protection, including considering foreign currencies as a separate asset class, reflects a commitment to managing costs while optimising returns. By favouring internal management of assets and launching internally managed strategies like ‘long-term real return,’ USSIM aims to control expenses and achieve market performance with lower risk. The fund’s response to the UK LDI crisis demonstrates its proactive approach to liquidity management and risk mitigation, avoiding costly forced asset sales. USSIM’s unique investment governance model, comprehensive strategic allocation, and commitment to internal management of assets reflect an innovative approach to cost-effective investing.
Additionally, USS’s commitment to environmental sustainability and climate stewardship is noteworthy. While striving for carbon neutrality by 2050, USS has defended its fossil-fuel divestment strategy, highlighting its dedication to responsible investing and the long-term financial implications of climate risk. As USS continues to evolve its investment strategy, collaboration with the University of Exeter to develop climate scenarios demonstrates a forward-thinking approach.
Overall, USS’s investment strategy appears to prioritise cost-effective diversification, risk management, and responsible investing in a dynamic pension landscape.