United
States
Air
Force
Pension
and
Life
Assurance
Scheme
-
United
Kingdom
Statement
of
Investment
Principles
-
June
2021
Introduction
The
Trustees
of
the
United
States
Air
Force
Pension
and
Life
Assurance
Scheme
-
United
Kingdom
(the
"Scheme")
have
drawn
up
this
Statement
of
Investment
Principles
(the
"Statement")
to
comply
with
the
requirements
of
the
Pensions
Act
1995
(the
"Act")
and
subsequent
legislation.
The
Statement
is
intended
to
affirm
the
investment
principles
that
govern
decisions
about
the
Scheme's
investments.
The
Trustees
have
obtained
and
considered
written
professional
advice
from
Mercer
Limited
(the
"Investment
Consultant")
in
preparing
this
Statement.
The
Trustees
believe
that
the
Investment
Consultant
meets
the
requirements
of
Section
35
(3)
of
the
Pensions
Act
1995.
In
matters
where
the
investment
policy
may
affect
the
Scheme's
funding
policy,
input
has
also
been
obtained
from
the
Scheme
Actuary.
The
Trustees
will
obtain
similar
advice
whenever
they
review
this
Statement.
The
Trustees
seek
to
maintain
a
good
working
relationship
with
United
States
Air
Force
(the
"Sponsor"),
and
will
discuss
any
proposed
changes
to
the
Statement
with
the
Sponsor.
However,
the
Trustees'
fiduciary
obligations
to
the
Scheme's
members
will
take
precedence
over
the
Sponsor's
wishes,
should
these
ever
conflict.
Stewardship
of
the
investment
arrangements
can
be
divided
into
three
areas.
The
first,
the
strategic
management
of
the
assets,
is
fundamentally
the
responsibility
of
the
Trustees,
acting
on
expert
advice
from
the
Investment
Consultant,
and
is
driven
by
the
Scheme's
investment
objectives
as
set
out
in
Section
3
below.
The
second
area
is
the
day
to
day
management
of
the
assets,
which
is
delegated
to
professional
investment
managers
and
is
described
in
Section
6.
The
third
area
is
the
ongoing
measurement
and
monitoring
of
the
performance
of
the
appointed
managers
against
predetermined
benchmarks.
Again,
this
is
the
responsibility
of
the
Trustees.
2.
Process
for
Choosing
Investments
The
process
for
choosing
investments
is
as
follows:
Identify
appropriate
investment
objectives.
Agree
the
level
of
risk
consistent
with
meeting
the
objectives
set.
¯
Construct
a
portfolio
of
investments
that
is
expected
to
maximise
the
return
(net
of
all
costs)
given
the
targeted
level
of
risk.
In
considering
investments
for
the
Scheme,
the
Trustees
obtain
and
consider
written
advice
from
the
Investment
Consultant,
who
the
Trustees
believe
to
be
suitably
qualified
to
provide
such
advice.
The
advice
received
and
arrangements
implemented
are,
in
the
Trustees'
opinion,
consistent
with
the
requirements
of
Section
36
of
the
Pensions
Act
1995
(as
amended).
Page
3
¯
The
risk
that
the
returns
of
certain
assets
classes
and
sectors
may
be
significantly
affected
by
climate
change
and
Environmental,
Social
and
Governance
(ESG")
risks.
The
Trustees
take
climate
risk
into
account
in
the
selection,
retention
and
realisation
of
the
Scheme's
investment
managers.
The
Trustees'
policies
on
ESG
risks
are
set
out
later
on
in
this
statement.
¯
The
Trustees
recognise
that
currency
risk
may
also
arise
due
to
investment
in
overseas
markets
and
looks
to
mitigate
this
through
diversification
across
markets
and
by
the
use
of
currency
hedging
within
the
Scheme's
equity
porffolio.
Investments
are
also
made
in
sterling
denominated
funds
where
possible.
¯
The
Trustees
recognise
the
need
for
liquidity
within
the
Scheme's
investment
strategy
and
therefore
looks
to
invest
in
funds
which
are
readily
marketable.
Where
this
is
not
the
case,
consideration
is
given
to
the
overall
liquidity
of
the
Scheme's
assets
with
the
aim
of
ensuring
that
there
is
sufficient
liquidity
to
meet
the
Scheme's
ongoing
cashflow
requirements.
¯
The
Trustees
acknowledge
the
risk
that
the
day
to
day
management
of
the
assets
will
not
achieve
the
rate
of
investment
return
expected
by
the
Trustees.
The
Trustees
recognise
that
the
use
of
active
investment
management
involves
such
a
risk
and
so
a
large
component
of
the
Scheme's
assets
are
passively
managed.
The
Trustees
believe
that
the
investment
strategy
provides
adequate
diversification,
both
within
and
across
different
asset
classes
and
sectors.
The
Trustees
further
believe
that
the
current
investment
strategy
is
appropriate
given
the
Scheme's
liability
profile.
In
deciding
to
take
investment
risk
relative
to
the
liabilities,
the
Trustee
has
carefully
considered
the
following
possible
consequences:
¯
The
assets
might
not
achieve
the
excess
return
relative
to
the
liabilities
anticipated
over
the
longer
term.
This
would
result
in
the
deterioration
of
the
Scheme's
financial
position
and
consequently
more
contributions
than
currently
expected
from
the
Sponsor.
¯
The
relative
value
of
the
assets
and
liabilities
will
be
more
volatile
over
the
short
term
than
if
investment
risk
had
not
been
taken.
This
risk
will
therefore
increase
the
likelihood
of
there
being
a
shortfall
of
assets
relative
to
the
liabilities
in
the
event
of
discontinuance
of
the
Scheme.
This
consequence
is
particularly
serious
if
it
coincides
with
the
Sponsor
being
unable
to
make
good
the
shortfall.
¯
This
volatility
in
the
relative
value
of
assets
and
liabilities
may
also
increase
the
short-term
volatility
of
the
Sponsor's
contribution
rate
set
at
successive
actuarial
valuations,
depending
on
the
approach
to
funding
adopted.
The
Trustees
have
taken
advice
on
these
issues
from
the
Investment
Consultant
and
the
Scheme
Actuary.
It
has
also
held
related
discussions
with
the
Sponsor.
June
2021
Page
5
The
primary
objective
of
the
matching
portfolio
is
to
reduce
the
mismatch
between
the
Scheme's
assets
and
liabilities.
The
Trustees
have
set
a
liability
hedging
target
of
80%,
measured
on
the
technical
provisions
basis.
This
will
be
achieved
following
an
initial
period
over
which
the
extent
of
liability
hedging
will
be
increased
to
the
target
level
on
a
phased
basis.
This
is
expected
to
be
completed
before
the
end
of
2022.
The
liability
hedging
target
is
delivered
via
a
liability
driven
investment
('LDI")
portfolio,
which
invests
in
partially
funded
gilt
funds
and
cash.
The
Trustees
have
also
decided
to
invest
a
proportion
of
the
matching
portfolio
in
non
-government
bonds.
This
is
due
to
the
potential
return
premium
offered
on
these
assets
over
equivalent
government
bonds,
having
due
regard
to
the
additional
credit
risk
associated
with
such
investments.
The
Trustees
believe
that
the
investment
risk
arising
from
the
investment
strategy
is
consistent
with
the
overall
level
of
risk
being
targeted.
The
table
below
shows
the
investment
strategy
which
has
been
agreed.
Asset
Class
Benchmark
Allocation
(%)
Growth
assets
50.0
Equity
35.0
UK
3.5
Overseas
(50%
currency
hedged)
31.5
DGF
15.0
Matching
assets
50.0
Corporate
bonds
20.0
LDI
30.0
Total
100.0
6.
Day
-to
-Day
Management
of
the
Assets
The
Trustees
invest
the
Scheme's
assets
in
pooled
fund
arrangements
managed
by
State
Street
Global
Advisors
('SSgA")
and
Insight
Investment
Management
Limited
(Insight").
The
Trustees
regularly
review
the
continuing
suitability
of
the
Scheme's
investments,
which
may
be
adjusted
from
time
to
time.
However,
any
such
adjustments
would
be
implemented
with
the
aim
of
ensuring
the
overall
level
of
risk
is
consistent
with
that
being
targeted.
The
tables
below
show
the
funds
in
which
the
Scheme
is
invested
together
with
their
associated
benchmarks.
June
2021
Page
7
Insight
LDI
Portfolio
Fund
Benchmark
Performance
Objective
Index
Partially
Funded
Guts
n/a
Provide
fixed
and
inflation
-linked
returns
Liquidity
Plus
SONIA
Provide
stability
of
capital
and
income
through
investment
in
short
term
fixed
income
and
variable
rate
securities
7.
Investment
Manager
Appointments
and
Ongoing
Monitoring
In
selecting
the
investment
managers,
the
Trustees
have
taken
advice
from
the
Investment
Consultant
with
regard
to
their
perceived
investment
capabilities
and
the
fees
for
such
capabilities.
The
Trustees
will
seek
guidance
from
the
investment
consultant
on
their
forward
-
looking
assessment
of
the
managers'
ability
to
deliver
upon
their
stated
objectives
over
a
full
market
cycle.
This
view
will
be
based
on
the
consultant's
assessment
of
the
managers'
idea
generation,
portfolio
construction,
implementation
and
business
management
(amongst
other
things),
in
relation
to
the
particular
strategies
that
the
Scheme
invests
in.
The
consultant's
manager
research
ratings
assist
with
due
diligence
and
(where
available)
are
used
in
decisions
around
selection,
retention
and
realisation
of
manager
appointments.
The
Trustees
will
review
an
appointment
if
the
investment
objective
for
a
manager's
fund
changes,
to
ensure
it
remains
appropriate
and
consistent
with
the
Trustees'
wider
investment
objectives.
As
the
Scheme
invests
in
pooled
investment
vehicles,
the
Trustees
accept
that
they
have
no
ability
to
specify
the
risk
profile
and
return
targets
of
the
manager,
but
appropriate
mandates
can
be
selected
to
align
with
the
overall
investment
strategy.
The
investment
managers
are
aware
that
their
continued
appointment
is
based
on
their
success
in
delivering
the
mandate
for
which
they
have
been
appointed.
If
the
Trustees
are
dissatisfied,
then
they
will
look
to
review
the
appointment.
The
Trustees
receive
investment
manager
performance
reports
on a
quarterly
basis,
which
present
performance
information
over
3
months,
1
year,
3
years
and
5
years.
The
Trustees
review
the
absolute
performance
of
the
relevant
funds,
as
well
as
their
relative
performance
versus
a
suitable
benchmark
index
and
against
the
managers'
stated
performance
targets
(over
the
relevant
time
period).
The
Trustees'
focus
is
on
long
term
performance.
However,
as
noted
above,
they
may
review
a
manager's
appointment
if:
¯
There
are
sustained
periods
of
the
manager
failing
to
achieve
its
stated
investment
objectives.
¯
There
is
a
change
in
the
portfolio
manager
of
a
fund.
June
2021
Page
9
11.
Socially
Responsible
Investment
and
Corporate
Governance
The
Trustees
believe
that
environmental,
social,
and
corporate
governance
('ESG")
factors
have
a
material
impact
on
investment
risk
and
return
outcomes,
and
that
good
stewardship
can
create
and
preserve
value
for
companies
and
markets
as
a
whole.
The
Trustees
also
recognise
that
long-term
sustainability
issues,
particularly
climate
change,
present
risks
and
opportunities
that
increasingly
may
require
explicit
consideration.
The
Trustees
have
given
the
appointed
investment
managers
full
discretion
in
evaluating
ESG
factors,
including
climate
change
considerations,
as
well
as
for
exercising
the
voting
rights
and
stewardship
obligations
attached
to
the
investments,
in
accordance
with
their
own
corporate
governance
policies
and
current
best
practice,
including
the
UK
Corporate
Governance
Code
and
UK
Stewardship
Code.
The
Trustees
will
review
the
investment
managers'
policies
and
engagement
activities
on an
annual
basis.
As
the
assets
of
the
Scheme
are
invested
in
pooled
vehicles,
the
Trustees
accept
that
the
assets
are
subject
to
the
investment
managers'
own
policies
on
social,
environmental
and
ethical
investment.
The
Trustees
increasingly
consider
how
ESG,
climate
change
and
stewardship
is
integrated
within
investment
processes
in
appointing
new
investment
managers
and
monitoring
the
existing
investment
managers
through
the
use
of
ESG
ratings
provided
by
the
investment
consultant.
The
Trustees
will
consider
how
a
manager's
approach
to
ESG
integration,
climate
change,
stewardship
and
responsible
investment
aligns
with
the
Trustees'
policies
when
determining
future
investment
strategy
decisions
and
manager
or
mandate
appointments.
Member
views,
including
their
ethical
views,
are
not
taken
into
account
in
the
selection,
retention
and
realisation
of
investments.
However
this
position
may
be
reviewed
in
the
future.
12.
Additional
Voluntary
Contributions
("AVCs")
Assets
in
respect
of
members'
Additional
Voluntary
Contributions
(AVCs")
are
held
in
the
SSgA
Sterling
Liquidity
Fund.
13.
Advisors
to
the
Trustees
Actuary
Adam
Tidey
of
Mercer
Limited
is
the
appointed
Scheme
Actuary.
The
actuary
performs
a
valuation
of
the
Scheme
at
least
every
three
years.
The
main
purpose
of
the
actuarial
valuation
is
to
assess
the
extent
to
which
the
assets
cover
the
accrued
liabilities
and
provide
information
to
help
determine
the
Participating
Employers'
contribution
rate.
June
2021
Page
11
Trustee
MaryJane
Belinfante
Date23
Sep
2021
haeI
J.
Rooney
The
Trustees
of
the
United
States
Air
Force
Pension
and
Life
Assurance
Scheme
June
2021
Date
23
Sep
2021
