7 Risks
7.1 The Trustee has considered the following risks associated with the Scheme’s investment holdings and the nature of its liabilities, and considered ways of managing/monitoring these risks:
Risk relative to the valuation of the Scheme’s liabilities
The Trustee will review the investment strategy with respect to the characteristics of the Scheme’s liabilities when they are reassessed at each actuarial valuation. Such characteristics include interest rate risk, inflation risk and longevity risk. The investment strategy will be set with consideration to the risks associated with these characteristics in the context of the Trustee’ s agreed funding plan, the de-risking framework and allowing for the Trustee’s view of covenant risk. The Trustee recognises that the returns from its holdings may be volatile and seeks to manage the risk of falls in the value of the portfolio (outside of assets used to hedge changes in the value of the liabilities), through the use of diversification and active management, as appropriate. Ultimately, the Trustee would typically aim to avoid being unnecessarily exposed to market volatility, subject to the inv estment strategy’s expected return being consistent with the Trustee’s funding plan and the de-risking framework, and the associated level of risk being consistent with the Trustee’s view of covenant risk. In determining its investment objectives and strategy, the Trustee considers the ability and legal obligation of the participating employers to support the Scheme (including allowance of the additional security provided by the guarantee).
Return volatility for assets that are not used to hedge changes in the value of the Scheme’s liabilities
Covenant risk
Asset allocation risk
The benchmark asset allocation is detailed in IIP and any deviation from the benchmark asset allocation is monitored on a regular basis by the CIF Administrator/the Trustee.
Manager performance risk
The CIF Administrator/the Trustee monitors the performance of each of the Scheme’s investment managers on a regular basis, inclusive of meetings with each manager from time to time. The Trustee has a written agreement with each investment manager, which sets out the parameters within each investment manager may operate. ESG-related risks, including climate risk are potentially financially material risks across all future time periods. The Trustee will continue to develop its policy to consider these, alongside other factors, when selecting or reviewing the Scheme’s investments, in order to manage the risk of loss and, where appropriate, to take associated opportunities. Each asset manager is expected to undertake good stewardship and positive engagement in relation to the underlying securities held. The Trustee monitors these and will report on the managers’ practices in the annual Implementation Statement.
Environmental, Social and Governance (ESG) related risks, including climate risks
Concentration risk
Each investment manager is expected to manage broadly diversified portfolios and to spread assets across a number of individual shares and securities, as appropriate to the mandate.
Liquidity risk
The Trustee invests in asset classes such that there is a sufficient allocation to liquid investments that can be converted into cash at short notice given the Scheme’s cashflow and collateral management requirements. The Scheme’s administrators and the RTX Pensions Department assess the level of cash held in order to limit the impact of the cashflow requirements on the investment strategy, while potential collateral requirements resulting from derivative-based holdings are monitored by the Trustee, Barnett Waddingham and the relevant investment manager on an ongoing basis.
UTC (UK) Pension Scheme | Statement of Investment Principles | 22 August 2023
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