Investment is one of the key responsibilities for the Trustees and therefore a lot of time is spent considering investment issues. Cheviot’s investment strategy is therefore comprehensive and well developed. One of the key issues for the Trustees is making sure that, whilst the underlying strategy may be complex, the information and choices given to members and firms is simple and accessible.
The philosophy is based on a number of core investment beliefs. These beliefs are reviewed at least annually.
Governance - The Trustee Board and the Investment Committee is composed of a group of diverse individuals, as the belief is this will tend to support a strong decision making process which challenges rather than simply follows advice. The Trustees believe that governance information reviewed, and the decision-making responsibilities of the various Committees, the Chief Executive and advisers, should lead to decisions being made and implemented quickly and effectively.
Hedging the cost of providing the benefits - The cost of providing the benefits is affected by changes in interest and inflation rates. The risk of the cost increasing is perceived to be in general an unrewarded risk - ie the schemes do not get any additional return for taking the risk. The Trustee believes that these risks should be managed by the use of swaps where possible. It recognises that this may not be possible for the money purchase benefits at the moment but continues to consider ways in which this may be accessible in the future.
Diversification - Different assets classes usually perform differently over the same period (although this is not always the case). The Trustee believes that it is important for investment risk to be spread amongst different asset classes to provide more stable returns.
Rotation - Assets behave differently in different economic scenarios and market conditions. The Trustee believes it is important to be able to move between asset classes quickly and effectively.
Style of management - The Trustee believes it is important to have access to all forms of investment management. It selects managers on the basis of which style of management it believes is appropriate for each asset class. The choice will be influenced by the following factors:
Management Structure - Where active management is the preferred style, the Trustee believes in making use of specialist active managers, rather than generalist managers, as a means of improving the likelihood of delivering the mandate. The mandates set will include performance objective and constraints and must have regard to the particular market in which the manager is investing.
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