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HOCHTIEF (UK) Construction Limited Retirement Benefits Scheme

Statement of Investment Principles – September 2020

Click here to view signed statement and Appendix – Investment Mandates


The Trustees of the HOCHTIEF (UK) Construction Limited Retirement Benefits Scheme (“the Scheme”) have drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005 and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 and 2019. The Statement is intended to affirm the investment principles that govern decisions about the Scheme’s investments. In preparing this Statement the Trustees have consulted HOCHTIEF (UK) Construction Limited (“the Employer”) on the Trustees’ investment principles.


The Trustees of the Scheme make all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers. The process for making investment decisions is as follows:

  • Identify appropriate investment objectives;
  • Agree the level of risk consistent with meeting the objectives; and
  • Implement an investment strategy and investment manager structure in line with the level of risk and objectives agreed.

When making such decisions, and when appropriate, the Trustees take proper advice. The Trustees’ investment consultants, Capita, are qualified by their ability in and practical experience of financial matters, and have the appropriate knowledge and experience to provide such advice. Capita Employee Solutions is authorised under the Financial Services and Markets Act 2000 to provide regulated investment advice to the Trustees.

Investment Objectives

The Trustees are required to invest the Scheme’s assets in the best interest of members, and their main objectives with regard to investment policy are:

  • To achieve, over the long term, a return on the Scheme’s assets which is at least equal to the assumptions made by the Scheme Actuary in determining the funding of the Scheme;
  • To ensure that sufficiently liquid assets are available to meet benefit payments as they fall due; and
  • To consider the interests of the Employer in relation to the size and volatility of the Employer’s contribution requirements.

The Trustees understand, following discussions with the Employer, that it is willing to accept a degree of volatility in the company’s contribution requirements in order to reduce the long-term cost of the Scheme’s benefits.

Risk Management and Measurement

The Trustees are aware of and pay close attention to a range of risks inherent in investing the assets of the Scheme. The Trustees believe that the investment strategy provides for adequate diversification both within and across different asset classes. The Trustees further believe that the current investment strategy is appropriate given the Scheme’s liability profile. The Trustees’ policy on risk management is as follows:

  • The primary investment risk faced by the Scheme arises as a result of a mismatch between the Scheme’s assets and its liabilities. This is therefore the Trustees’ principal focus in setting investment strategy, taking into account the nature and duration of the Scheme’s liabilities.
  • The Trustees recognise that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Scheme’s liabilities as well as producing more short-term volatility in the Scheme’s funding position. The Trustees have taken advice on the matter and (in light of the objectives noted previously) considered the implications of adopting different levels of risk.
  • The Trustees recognise the risks that may arise from the lack of diversification of investments. Subject to managing the risk from a mismatch of assets and liabilities, the Trustees aim to ensure the asset allocation strategy in place results in an adequately diversified portfolio. Due to the size of the Scheme’s assets and recognising the need to diversify, investment exposure is obtained via pooled vehicles.
  • The documents governing the managers’ appointment include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the Scheme.
  • The Trustees recognise that, where appropriate, the use of active management involves a risk that the assets do not achieve the expected return. However, they believe this risk is outweighed by the potential gains from successful active management, in particular in regions or asset classes where this potential is greater than others. Therefore, the Scheme’s assets are managed through a mixture of active and passive management which may be adjusted from time to time.
  • The safe custody of the Scheme’s assets is delegated to professional custodians via the use of pooled vehicles.

In the investment advice provided to the Trustees, Capita as the investment advisor have not taken account of climate related risks separately from the other risks that exist and affect the Scheme.

Should there be a material change in the Scheme’s circumstances, the Trustees will review whether the current risk profile remains appropriate.

Investment Strategy

Given their investment objectives the Trustees have agreed to the asset allocation detailed in the table below. The Trustees believe that the investment risk arising from the investment strategy is consistent with the overall level of risk being targeted.

Asset ClassStrategic Asset Allocation (%)
Global Equity25.0
Emerging Market Equity5.0
Emerging Market Debt5.0
Absolute Return Bonds10.0
Diversified Growth Funds25.0
Return Seeking Assets:70.0
Liability Driven Investment (LOI) Real19.0
Liability Driven Investment (LOI) Nominal11.0
Matching Assets:30.0

The Trustees will monitor the Scheme’s actual asset allocation at least quarterly and will decide on a course of action. This may involve redirecting cash flows, a switch of assets, or taking no action. The Trustees will take into account advice from the investment consultant prior to making any decision. Further details on investment funds can be found in the Appendix.

LOI Strategy

As the funds in the LOI mandate employ leverage, collateral calls for cash in order to decrease the level of leverage in the fund (or releasing of money in order to increase the leverage) will be required. Cash calls are to be made from the Diversified Growth mandate, which is currently with Legal & General Investment Management. Similarly, cash distributions will be invested in the Diversified Growth mandate.

Expected Return

The Trustees expect the return on assets to be consistent with the investment objectives and investment strategy outlined above.

The Trustees expect to generate a return, over the long term, of circa 2.0% per annum, net of expenses, above a portfolio of long-dated UK Government bonds – which are considered to change in value in a similar way to the Scheme’s liability value. This return is a “best estimate” of future returns that has been arrived at given the Scheme’s longer term asset allocation and in the light of advice from the investment consultant.

The Trustees recognise that over the short term performance may deviate significantly from this long term expectation. This “best estimate” will also generally be higher than the estimate used for the actuarial valuation of the Scheme’s liabilities. For this purpose a more prudent estimate of returns will generally be used, as agreed by the Trustees on the basis of advice from the Scheme Actuary.

Platform Provider

The Trustees have appointed Legal & General Investment Management Limited (the Platform Provider”)to manage all of the assets of the Scheme. The Platform Provider is regulated under the Financial Services and Markets Act 2000. All decisions about the day-to-day management of the assets have been delegated to the Platform Provider via a written agreement, including the realisation of investments.

Investment Mandates

The Trustees have selected Legal & General Investment Management Limited (“LGIM”) and BNY Mellon Investment Management (“BNY Mellon”) as the appointed Investment Managers (“the Investment Managers”) to manage the assets of the Scheme via a single policy with the Platform Provider. The Investment Managers are themselves regulated under the Financial Services and Markets Act 2000.

The Trustees have rolling contracts with their investment managers.

The Trustees monitor the performance of their investment managers on a quarterly basis. This monitoring is contained in a report provided by their advisors.

The Trustees have set performance objectives, including time periods, consistent with the investment strategy set out in this statement.

Investment Manager Remuneration

The Trustees monitor the remuneration, including incentives, that is paid to their investment managers and how they reward their key staff who manage client funds, along with how the pay and incentives motivate employees who manage client funds.

As part of the monitoring that the Trustees carry out on a regular basis, they should ensure that this policy is in line with their investment strategy.

Investment Manager Philosophy and Engagement

The Trustees monitor the investment managers’ process for assessing the businesses they invest in, and whether business performance over the medium to long-term involves a holistic look beyond purely accountancy measures. The Trustees consider if the investment managers are incentivized to make decisions on a short-term basis or on a medium to long-term basis and whether this coincides with the business assessments. The Trustees are conscious of whether the investment managers are incentivised by the agreement with the Trustees to engage with the investee business and to what extent any engagement focuses on improving medium to long-term performance.

Investment Manager Portfolio Costs

The Trustees will monitor costs of buying, selling, lending and borrowing investments and they will look to monitor the costs breakdown annually, as long as the investment managers provide these costs using the Cost Transparency Initiative template. They will also ensure that, where appropriate, their investment managers monitor the frequency of transactions and portfolio turnover. If there are any targets then they will monitor compliance with these targets.

Financially material considerations over the Scheme’s time horizon

The Trustees believe that their main duty, reflected in their investment objectives, is to protect the financial interests of the Scheme’s members. The Trustees believe that ESG considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty and can contribute to the generation of good investment returns. Legislation requires that the Trustees form a view of the length of time that they consider is needed for the funding of future benefits by the investments of the scheme. The trustees recognise that this is a DB scheme closed to new entrants, but still with a relatively “immature” membership. Accordingly, the Trustees have formed the view that the appropriate time horizon of this scheme is expected to be over 10 years, which gives plenty of scope for ESG considerations to be financially material.

The Trustees have elected to invest in pooled funds and cannot, therefore, directly influence the ESG policies, including the day-to-day application of voting rights, of the funds in which they invest. However, the Trustees will consider these policies in all future selections and will seek to deepen their understanding of their existing managers’ policies by reviewing these at least annually. In cases where they are dissatisfied with a manager’s approach they will take this into account when reviewing them. They are also keen that all their managers are signatories of the UN Principles of Responsible Investment, which is currently the case.

The Trustees believe that stewardship is important, through the exercising of rights (including voting rights) attaching to investments. The Trustees are keen that their managers can explain when, and by what practical methods, the managers monitor and engage with relevant persons about relevant matters in this area. They will be liaising with their managers (including their passive managers) to obtain details of the voting behaviour (including the most significant votes cast on the Trustees’ behalf). The Trustees are also keen that their managers are signatories of the UK Stewardship Code. This is currently the case.

The Trustees are aware that ESG and stewardship considerations involve an ongoing process of education for themselves and engagement with their investment managers. To that end they dedicate time regularly to the discussion of this topic and intend to review and renew their approach periodically with the help of their investment consultants, where required. Consequently, the Trustees expect the Plan’s Investment Managers to have effective ESG policies (including the application of voting rights) in place and look to discuss the investment managers’ ESG policies with them when the managers attend Trustee meetings.

The Trustees will monitor the voting being carried out by investment managers and custodians on their behalf. They will do this by receiving reports from their investment managers which should include details of any significant votes cast and proxy services that have been used.

Non-financial matters, including members’ views are currently not taken into account.

Compliance with Myners’ Principles

The Trustees believe that they comply with the spirit of the Myners’ Principles.  There may be some instances of deviation from the published ‘Best Practice Guidance’ on the principles where the Trustees believe this to be justified.

Employer-Related Investments

The Trustees’ policy is not to hold any direct employer-related investments as defined in the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005.

Fee Structures

The Platform Provider is paid a management fee on the basis of assets under management which includes the underlying investment manager’s management fees. The investment consultant is paid on a fixed fee basis for providing ‘core services’. The Trustees can also request that Capita undertake ‘out-of-scope’ projects, which may be undertaken on a fixed fee or time-cost basis – as negotiated between the Trustees and Capita.

Review of this Statement

The Trustees will review this Statement at least once every three years and without delay after any significant change in investment policy. Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustees reasonably believe to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.

The Trustees of the HOCHTIEF (UK) Construction Limited Retirement Benefits Scheme

Click here to view signed statement and Appendix – Investment Mandates