CARRIER (UK) PENSION SCHEME YEAR ENDED 31 DECEMBER 2020
NOTES TO THE FINANCIAL STATEMENTS
Benchmark Allocation (%)
Rebalancing Range (%)
Asset class
Growth Equities
65.0 54.4 10.6 35.0
+/-5 +/-3 +/-4 +/-5
Target Return
Protection
UK Fixed Interest Bonds (Non-Gilt) and UK Index-Linked Bonds (Gilts)
34.0
+/-5
1.0
0-4
Cash
Total
100.0
Credit risk
The Scheme is subject to credit risk because it directly invests in bonds, OTC derivatives, has cash balances and holds units in pooled investment vehicles (PIVs). The Scheme has indirect exposure to credit risks from the underlying investments held by the pooled investment vehicles.
Analysis of direct credit risk as at 31 December 2020
Non- investment grade
Investment grade
2020 Value
2019 Value
Unrated
Bonds
27,996
174
812 368 550
28,982
30,005
368 550
135 707
Derivatives
- - -
- - -
Cash PIVs
93,732
91,746
93,732
27,996
174
95,462
123,632
122,593
The credit risk arising on bonds is mitigated by predominantly investing in government bonds and corporate bonds which are at least investment grade credit rated. The Scheme also invests in high yield bonds, which are non-investment grade. The associated credit risk is mitigated by placing restrictions on the assets that may be held within the bond portfolio. Credit risk arising on derivatives depends on whether the derivative is exchange traded or over the counter (OTC). The Scheme holds both exchange traded and OTC derivatives. OTC derivative contracts are not guaranteed by any regulated exchange and therefore the Scheme is subject to risk of failure of the counterparty. The risk is reduced through collateral arrangements. Direct credit risk arising from pooled investment vehicles is mitigated by the underlying assets of the pooled arrangements being ring-fenced from the pooled manager, the regulatory environments in which the pooled managers operate and the ongoing due diligence of the pooled manager.
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