UK Universities Superannuation Scheme Underperforms in Fiscal Year

Brexit woes, global economic uncertainty amid fund’s top concerns.

The UK’s Universities Superannuation Scheme (USS) posted 6.2% returns for the year ended March 31, but it fell short of its 7% benchmark.

The plan’s defined benefit plan assets grew to £67.4 billion ($84.1 billion), according to its recent annual report. The fund also has a $900 million defined contribution plan, which was created in 2017.

The DB plan’s funding ratio fell slightly, to 92%, from 94%. Roger Gray, its retiring chief investment officer, said the plan was affected by gilt yields (10-year British government bonds) “falling to historical lows” during its fiscal year.

“Looking forward, performance patterns will change with the next turn of events. USS will continue to seek the best long-term investment strategies to meet the scheme’s objectives, and to support these with committed teams, both internal and external,” he said.

Universities Superannuation Scheme said although markets reversed “sharply” in its fourth fiscal quarter (January-March) from fourth quarter 2018’s slump, it didn’t get enough of the equity boost other funds experienced as it was underweight in US stocks.

Brexit and low interest rates have also been affecting the college pension plan, as well as tuition fees and school funding. Sir David Eastwood, the superannuation’s board chair, said it was also worried about the global economy as growth continues to slow.

“These factors make both past benefits and the benefits being earned today more expensive to fund,” he said. “While we might reasonably assume that conditions will be better in the future, we also need to weigh in the potential consequences of being overly optimistic in this regard, which could be severe.”

However, the fund’s DB plan did slightly outperform its five-year benchmark by 0.31 percentage point. It has returned 10.1% over that period, increasing in value by about $31.7 billion.

A superannuation plan is a retirement institution that handles the investments of a nation’s specific sectors, such as medical professionals or, in this case, university employees.

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