The Merchant Navy Officers Pension Fund’s communication director Phil Boyle explains how the fund won Best Investment Strategy at this year’s awards

The foundations of the MNOPF’s success were laid in 2008 when it adopted a de-risking journey plan.

MNOPF

Between the scheme’s 2012 and 2015 valuations this helped boost funding levels by a healthy 10%. This is over a period when many others saw gains made in the first few years wiped out by falling markets – average funding levels nudged up by just 1% over the three years.

The MNOPF’s has also enjoyed a much smoother ride than many funds. Communications director Phil Boyle says: “Our funding level improved from 69% to 78-79% across that three year period, while the average scheme was unchanged. Between March 2014 and March 2015, that average scheme line goes from 75% down to about 62%, while our line goes from 74% to 78%.”

We’d rather see a line that goes steadily upwards than one that jags up and down

This means the scheme is on track to meet its target of 103% funding on a gilts basis by 2025. It has to give up some of the upside in rising markets, but Boyle believes this is a price worth paying for stability.

“To be blunt we will get criticism from sponsors,” he says. “But we believe in taking volatility off the table. We’d rather see a line that goes steadily upwards than one that jags up and down.”

A FLEXIBLE PLAN

This means the journey plan is at the centre of everything the fund does. It is discussed at every board meeting, with the delegated CIO updating trustees on the scheme’s progress.

The plan is also reviewed at every valuation, and if the economic environment changes. Most recently, the scheme re-baselined the plan in March 2015.

“The target is still the same, but the previous journey plan went up more steeply and then levelled off towards the end, as we approached the target,” says Boyle

“We took some risk off the table earlier, because we looked at the external conditions and thought now might not be the time to be having risk. With the benefit of hindsight that was a fantastic decision.”

DELEGATED CIO

The judges were impressed by the way the MNOPF worked with Willis Towers Watson, its delegated CIO. Boyle says this set up allows the scheme to be more nimble and has helped it access a broader range of assets.

“Historically, the investment emphasis was primarily on equities with some limited real estate and bond exposure,” he says. The new strategy puts a much stronger emphasis on liability matching.

The investment emphasis was primarily on equities with some limited real estate and bond exposure”

Boyle explains: “We use all of the tools available to make sure we have as little exposure as possible to interest rates and inflation. The DCIO makes all of the decisions in terms of the construction of the portfolio, in line with the investment strategy.”

On the other side, the scheme is investing in assets such as private equity, infrastructure, property and bridging loans.

“With an internal trustee investment committee you couldn’t have enough day-today oversight for this,” says Boyle. “That’s been the main benefit of using the fiduciary approach – you have specialists who can use the complete set of tools and make sure they are across the whole range of opportunities.”

RIDING THE BREXIT STORM

This has put the scheme in a strong position to meet its goals. Bringing things up to date, the scheme has weathered the volatility triggered by last month’s EU referendum well.

“We did a report on the impact of the vote for the trustee board two weeks after the result and we were able to say that the funding position was pretty much unchanged,” he says. “Obviously a lot of schemes didn’t have that luxury because they were a lot more exposed to the markets that fell.”