As this graph shows, #USS has already engaged in extensive 'de-risking' of its portfolio from equity into bonds during the past 10 years. Calls from @FirstActuarial and @ucu for a cancellation of plans for further de-risking should be assessed in this context. 1/ 
2007 is an instructive benchmark, since it marks the point of transition from the regulatory regime that was the upshot the 1995 Pensions Act to that which was the upshot of the 2004 Pensions Act. 2/
As this account show, the 95 PA regs were highly friendly to investment in equities. MFR = minimum funding requirement which USS greatly exceeded. Non-pensioner liabilities matched by equities. 'Equity easement' of pensioner liabilities for large schemes such as USS. 3/
Initially, the introduction of the new PA 2004 regulations didn't seem to have much of an effect on #USS. The 2008 triennial valuation was the first under the new regulations (which apply to this day). 4/
According to the 2008 valuation, the scheme was 103% funded (£0.7 bn surplus). Recall that back then, the scheme was 1/80th DB final salary on all salaries. (The scheme was even *more* well funded -- 104% -- on an FRS accounting basis, w/ AA corporate bond discount rate.) 5/
Here's a breakdown of the assets in the scheme's portfolio, as of the 31 March 2008 date of the valuation. c. 80% equities. Gilts were almost entirely absent. 6/
This equity-weighted portfolio had performed well between the previous (March 2005) valuation -- the last one under the old regulations -- and the 2008 valuation. Assets had risen in value by about 33% (11% per annum). 7/
But then, between 31 March 2008 and 31 March 2009, the Global Financial Crisis intervened. The value of the assets in the scheme fell by 26% during those twelve months, to below their level in March 2005. 8/
According to #USS's 31 March 09 Report & Accounts, the scheme's funding level fell from 103% to 74% from March 08 to March 09. 9/
In spite of this reversal of equity fortune, #USS offered the following bullish reaffirmation of their equity-weighted approach to investment in this statement in their March 09 Report & Accounts that could have been written by @FirstActuarial: 10/
👆Please pause for a moment to read the above statement, and note what a remarkable contrast it provides to #USS's current Test 1 driven mission to de-risk the portfolio away from equities and towards the 'safe harbour' of a self-sufficiency portfolio weighted towards bonds. 11/
Why is it that, even after the demise of the equity-friendly 95 PA regulations and the crash in the stock market in the autumn of 2008, #USS was still still maintaining a commitment to heavy investment in equities in mid-2009? 12/
And what accounts for the radical change in #USS's approach to investment between 2009 and the present? 13/
In order to understand the predicament we're now in, we will need to know the answer to that last question. I don't yet have a satisfactory answer. I hope to be able to provide one in a future post. 14/14
PS: Another passage in #USS 2009 Accounts emphasising positive cash flows, investment in equities for long term, & strong covenant. Strikingly similar to @FirstActuarial. Reaffirms 2008 surplus valuation. But ends on note of caution, in light of recent equity market turmoil.
I've now had a look at the 2010 Report & Accounts. 09-10 was a good year, financially, w/ the fund recovering much of its losses from 08-09. Funding level up from 74% to 91%. In spite of this, two indications of shift towards a more conservative approach: 1/
The statement of investment principles in '10' above is reproduced almost word for word, except that the following words are added after "Short-term volatility
of returns can be tolerated and need not feed through directly to the contribution rate..." 2/
of returns can be tolerated and need not feed through directly to the contribution rate..." 2/
"...although the trustee is mindful of the desirability of keeping the funding level on the scheme’s technical provisions close to or above 100% thereby minimizing the risk of the introduction of deficit contributions." 3/
There is also an announcement, which appears to mark the beginning of the de-risking of the fund, of a decision to shift some of the assets from equities into bonds: 4/
The Statement of Investment Principles includes this explanation: 5/5
👆Actually, scheme more than recovered all of its losses, in nominal terms. Assets £28.8bn in Mar 08, had dropped to £21.4bn by Mar 09, but had risen to £29.7bn by Mar 10. Only 91% funded (whereas 103% funded in 08) because value of liabilities also rose significantly in 09-10.
No revisions to the Statement of Investment Principles in the 11 or 12 Accounts. The 2012 Accounts, however, mention a strategic asset allocation review that followed the 2011 triennial AV. This resulted in changes to the portfolio which did not, however, lower expected returns:
Moving to the 2013 Accounts, my reaction is 🚨😯😱. This marks a clear rupture from the past. A 'paradigm shift'. Time has been called on the @FirstActuarial approach based on long-term investment heavily weighted towards equities.⌛️Among the changes: 1/
A new CEO has just taken the helm: someone named Bill Galvin, who had spent his previous three years as CEO of the Pensions Regulator, including during the 2011 USS valuation, which tPR merely 'noted' rather than accepting, since they regarded it as too risky. 2/
Also notable is the stepping down of Edwin Topper as scheme actuary and his replacement by Ali Tayyebi. 3/
JP Morgan's Rene Poisson is appointed as an independent trustee, as is Kevin Carter, also with a background in the City. This marks an expansion in the number of independent trustees from 4 to 5. 4/
It was often claimed in UCU briefings of pensions officers during the 2014 valuation that the independents from the City played a major role in ratcheting up the level of 'prudence' of that valuation (which was more conservative than either the 2011 or the 2017 valuation). 5/
This also marks the point when @DaveGuppy stepped down as UCU-appointed trustee after 6 years, though, as we know, Dave was later to be appointed to serve in the UCU-appointed trustee who is a pensioner rather than an active member. 6/
The 2013 Accounts state: "During the year, we incorporated the scheme’s investment activities into a subsidiary company; USS Investment Management
Limited (USSIM). ...The trustee board is committed to maintaining an in-house investment team for a large proportion of the fund." 7/
Limited (USSIM). ...The trustee board is committed to maintaining an in-house investment team for a large proportion of the fund." 7/
There's also a new Statement of Investment Principles, plus the fairly extensive spelling out of an approach to pensions valuation and risk management that was absent from previous Accounts. 8/
The chair of the board of trustees remains the same -- Martin Harris. But his 'Chairman's Introduction' spells out a number of the above changes. 9/
About the only thing that remains unchanged is the funding level of the scheme. It was 77% in 2012. And it remains 77% in 2013. Even here, however, Sir Martin emphasises that there were dramatic shifts in assets and liabilities, which cancelled each other out. 10/
In one of my tweets upthread, I asked: 11/
And then I said: 12/
I still don't have a satisfactory answer. But I think the year 2013 is the place to start looking most closely for one. I don't plan to do that now, as I've at least temporarily lost the will to spend more time with my USS Accounts. But I hope others will dig further. 13/13
Re this tweet upthread on the independent trustees:
I'm reminded of this excellent thread by @martin_oneill on the narrow perspective of the independents:
This was my response to @martin_oneill's thread at the time:
