The Pension Protection Fund (PPF) manages roughly €38bn on behalf of more than 590,000 members of private sector defined benefit schemes that have lost their sponsoring employers to insolvency. It takes a market-leading approach to liability-driven investment (LDI), recalibrating its liabilities every week in its matching portfolio and managing risk in real time. A portion of the LDI hedge was run externally until 2020 when it was brought in-house following the superior performance of the PPF portfolio.

The PPF conducts extensive scenario testing to ensure it has sufficient liquidity to withstand extreme movements in interest rates and inflation. It has also actively reduced the amount of leverage in its LDI strategy. The value of this approach was highlighted when the LDI crisis hit in 2022, as PPF had access to enough liquidity to honour all its collateral calls. It emerged from the crisis in a stronger financial position than it had entered it.

The fund’s returns have been consistently ahead of target, delivering an average annual return of 4.8% (excluding hedging assets) over the past decade, illustrating that a low-risk approach does not compromise returns. It takes a buy-and-hold approach to UK credit, aiming to generate additional returns above government bonds. The internal team has a strong focus on credit quality and as a result has avoided any material deterioration in credit quality despite recent market volatility.

The alternatives portfolio consists of allocations to real estate, private equity, farmland and timberland, infrastructure and alternative credit. The PPF prefers to use funds, co-investments and direct investments, but has also used listed vehicles when appropriate. Each asset class has comfortably outperformed its respective benchmark over three and five years, with an overall outperformance of 5% a year over five years from the alternatives portfolio.

The PPF has also implemented a significant hiring programme to expand the team’s experience and knowledge base and has broadened the diversity of its workforce.