Strathclyde to switch £4 billion into low-carbon indices

The £29.2 billion local government scheme is to amend its passive equity mandate with Legal & General Investment Management (LGIM) to use the company’s low carbon transition index series, which analysis showed would help meet Strathclyde’s portfolio decarbonisation objectives.

Approximately £4 billion is set to move to the low-carbon mandates, equivalent to roughly 14% of the scheme’s total assets.

According to documents from Glasgow City Council, the administering authority for the Strathclyde Pension Fund, the scheme is also cutting an allocation to an emerging markets factor index strategy as there is no low-carbon alternative.

The changes are part of a detailed review of the scheme’s investment strategy following its 2023 actuarial valuation, which reported an £8.9 billion surplus, giving the scheme a 147% funding ratio.

As a result, Strathclyde is set to reduce its equity allocation to 47% of its total portfolio and increase its bond allocation to 15% “to reduce investment risk”.

Over the past 13 years the scheme’s target equity allocation has steadily reduced 72.5% in 2011 to 52.5% in 2017. It will now reduce this further to 47%.

The strategy, advised on by Hymans Robertson, also includes a small increase to the scheme’s active emerging market equity allocation. The scheme’s management committee is currently assessing options for a new manager to replace Genesis Investment Management.

Fixed income changes
The Scottish local authority scheme also plans to pump almost £2.5 billion into UK government bonds as it looks to reduce risk and lock in recent investment gains.

Its previous target allocation to what it calls the “hedging and insurance” section of the portfolio was 1.5% of assets, but it has now raised this target to 10%, implying an additional £2.5 billion of gilt investment based on its current assets under management.

The investment will be split equally between nominal and index-linked Gilts.

Meanwhile, Strathclyde is also planning an allocation of approximately 2.5% of the portfolio to a “buy and maintain” credit mandate, options for which will be discussed later in the year.

The fund has also cut its target allocation to emerging market debt, which was previously 2.5%, and run by Ashmore Group. In council documents, the scheme said the mandate “has not added value since inception of the mandate in 2017”.

Within its “long-term enhanced yield” portfolio – made up largely of real assets and impact strategies – Strathclyde plans to slightly reduce its property weighting in favour of an expanded global infrastructure portfolio. It also plans to increase investment in its Direct Impact Portfolio, which targets local and sustainable investments.