Statement of Investment Principles

The McCurrach Group Pension Scheme

Statement of Investment Principles

Purpose of this Statement

This SIP has been prepared by the Trustee of the McCurrach Group Pension Scheme (the “Scheme”).

This Investment Statement sets out the principles governing decisions about investments for the McCurrach Group Pension Scheme (“the Scheme”) to meet the requirements of The Pensions Act 1995, as amended by the Pensions Act 2004, and The Occupational Pension Schemes (Investment) Regulations 2005. It is subject to periodic review by the Trustee at least every three years and more frequently as appropriate.

The Scheme’s investment strategy is derived from the Trustee’s investment objectives. The objectives have been taken into account at all stages of planning, implementation and monitoring of the investment strategy.

Governance

The Trustee of the Scheme make all major strategic decisions including, but not limited to, the Scheme’s asset allocation and the appointment and termination of investment managers.

When making such decisions, and when appropriate, the Trustee takes proper written advice. The Trustee believe that their investment advisers, Isio, are qualified by their ability in, and practical experience, of financial matters, and have the appropriate knowledge and experience. The investment advisers’ remuneration may be a fixed fee or based on time worked, as negotiated by the Trustee in the interests of obtaining best value for the Scheme.

Investment objective

The Scheme is closed to new entrants and closed to future benefit accrual on 31 December 2011. The Trustee invest the assets of the Scheme with the aim of ensuring that all members’ current and future benefits can be paid. The Scheme’s funding position will be reviewed on an ongoing basis to assess the position relative to the funding target and whether the investment arrangements remain appropriate to the Scheme’s circumstances. The Scheme’s funding target is specified in the Statement of Funding Principles. The Scheme’s present investment objective is to achieve a return of around 1.8% p.a. above the return on UK Government bonds (which are considered to move in a similar fashion to the calculated value of theScheme’s liabilities).

The Trustee’s medium term objective is to reach and maintain a funding position of 100% of technical provisions – such a target being consistent with the strength of the employer covenant and the Trustee’s investment risk tolerance.

The long term funding objective is to reach a funding position such that all Members’ benefits can be secured within an insurance contract (i.e. reach full funding on an insurance buy-out basis). The Trustee also considers the Scheme’s funding position on other relevant bases for valuation and accounting.

Funding positions are monitored regularly by the Trustee and formally reviewed at each triennial valuation, or more frequently as required by the Pensions Act 2004.

Investment strategy

The Trustee takes a holistic approach to considering and managing risks when formulating the Scheme’s investment strategy.

The Scheme’s investment strategy was derived following careful consideration of the factors set out in Appendix B. The considerations include the nature and duration of the Scheme’s liabilities, the risks of investing in the various asset classes, the implications of the strategy (under various scenarios) for the level of employer contributions required to fund the Scheme, and also the strength of the sponsoring company’s covenant. The Trustee considered the merits of a range of asset classes.

The Trustee recognises that the investment strategy is subject to risks, in particular the risk of a mismatch between the performance of the assets and the calculated value of the liabilities. This risk is monitored by regularly assessing the funding position and the characteristics of the assets and liabilities. This risk is managed by investing in assets which are expected to perform in excess of the liabilities over the long term, and also by investing in a suitably diversified portfolio of assets with the aim of minimising (as far as possible) volatility relative to the liabilities.

The assets of the Scheme consist predominantly of investments which are traded on regulated markets.

Leverage and collateral management

The Trustees will adhere to all relevant regulatory guidance and requirements in relation to leverage and collateral management within the Scheme’s liability hedging (LDI) portfolio.
The Trustees have a stated collateral management policy. The Trustees have agreed a process for meeting collateral calls should these be made by the Scheme’s LDI manager. The Trustee will review this policy on a regular basis.

Further details on this can be found in Appendix D.

Investment Management Arrangements

The Trustee has appointed several investment managers to manage the assets of the Scheme as listed in the SIP. The investment managers are regulated under the Financial Services and Markets Act 2000.

All decisions about the day-to-day management of the assets have been delegated to the investment managers via a written agreement. The delegation includes decisions about:

Selection, retention and realisation of investments including taking into account all financially material considerations in making these decisions;
The exercise of rights (including voting rights) attaching to the investments;
Undertaking engagement activities with investee companies and other stakeholders, where appropriate.

The Trustee takes investment managers’ policies into account when selecting and monitoring managers. The Trustee also takes into account the performance targets the investment managers are evaluated on. The investment managers are expected to exercise powers of investment delegated to them, with a view to following the principles contained within this statement, so far as is reasonably practicable.

As the Scheme’s assets are invested in pooled vehicles, the custody of the holdings is arranged by the investment managers.

Investment Manager Monitoring and Engagement

The Trustee monitors and engage with the Scheme’s investment managers and other stakeholders on a variety of issues. Below is a summary of the areas covered and how the Trustees seek to engage on these matters with investment managers.

Areas for engagement

Method for monitoring and engagement

Circumstances for additional monitoring and engagement

Performance, Strategy and Risk

The Trustee receives a biannual performance report which details information on the underlying investments’ performance, strategy and overall risks, which are considered at the relevant Trustee meeting.
The Trustee also receives emails in intervening quarters, which summarise the performance of the Scheme’s managers relative to expectations over the period.

There are significant changes made to the investment strategy.
The risk levels within the assets managed by the investment managers have increased to a level above and beyond the Trustee’s expectations.
Underperformance vs the performance objective over the period that this objective applies.

Environmental, Social, Corporate Governance factors and the exercising of rights

The Trustee’s investment managers provide annual reports on how they have engaged with issuers regarding social, environmental and corporate governance issues.
The Trustee receives information from their investment advisers on the investment managers’ approaches to engagement.

The manager has not acted in accordance with their policies and frameworks.
The manager’s policies are not in line with the Trustee’s policies in this area.

Through the engagement described above, the Trustee will work with the investment managers to improve their alignment with the above policies. Where sufficient improvement is not observed, the Trustee will review the relevant investment manager’s appointment and will consider terminating the arrangement.

Employer-related investments

The policy of the Trustee is not to hold any employer-related investments as defined in the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005 except where the Scheme invests in collective investment schemes that may hold employer-related investments. In this case, the total exposure to employer-related investments will not exceed 5% of the Scheme’s total asset value. The Trustees will monitor this on an ongoing basis to ensure compliance.

Direct investments

Direct investments, as defined by the Pensions Act 1995, are products purchased without delegation to an investment manager through a written contract. When selecting and reviewing any direct investments, the Trustee will obtain appropriate written advice from their investment advisers.

Compliance

This Statement has been prepared in compliance with the Pensions Act 1995, the Pensions Act 2004, and the Occupational Pension Schemes (Investment) Regulations 2005. Before preparing or subsequently revising this Statement, the Trustee consulted the sponsoring company and took appropriate written advice. The Statement is reviewed at least every three years, and without delay after any significant change in the investment arrangements.

Realisation of investments

The Trustee operates a bank account for daily cash flow needs.

The significant majority of the Scheme’s investments may be realised quickly if required. The L&G Absolute Return Fund and Diversified Growth Fund allocations, which make up 50% of the portfolio, can be realised daily. The Apollo Semi Liquid Credit allocation, which has a target weight of 15% within the strategic benchmark, is relatively illiquid and is subject to 60 days’ notice, following a 2 year hard lock-up period.

Signed for and on behalf of BESTrustees as the Trustee of the McCurrach Group Pension Scheme

Zahir Fazal
Trustee

Date 20 November 2024

Appendix A

Strategic asset allocation split by fund manager

Fund Manager	Strategic Benchmark (%)	Mandate	Asset Class	Expected Return (%)
LGIM	35	Passive	Liability Driven Investments	-
	30	Passive	Absolute Return Bonds	1.5
	20	Active	Diversified Growth	2.8
Apollo	15	Active	Semi Liquid Credit	3.5
Total	100.0			1.8

Asset class expected return assumptions are quoted relative to Gilts and based on Isio’s central assumptions as at 31 March 2024.

Please note the Scheme expected return incorporates the benefits of diversification within the portfolio.

Appendix B – Risks, Financially Material Considerations and Non-Financial matters

A non-exhaustive list of risks and financially material considerations that the Trustee has considered and sought to manage is shown below.

The Trustee adopts an integrated risk management approach. The three key risks associated within this framework and how they are managed are stated below:

Risks	Definition	Policy
Investment	The risk that the Scheme’s position deteriorates due to the assets underperforming.	Selecting an investment objective that is achievable and is consistent with the Scheme’s funding basis and the sponsoring company’s covenant strength. Investing in a diversified portfolio of assets.
Funding	The extent to which there are insufficient Scheme assets available to cover ongoing and future liability cash flows.	Funding risk is considered as part of the investment strategy review and the actuarial valuation. The Trustee will agree an appropriate basis in conjunction with the investment strategy to ensure an appropriate journey plan is agreed to manage funding risk over time.
Covenant	The risk that the sponsoring company becomes unable to continue providing the required financial support to the Scheme.	When developing the Scheme’s investment and funding objectives, the Trustee takes account of the strength of the covenant ensuring the level of risk the Scheme is exposed to is at an appropriate level for the covenant to support.

The Scheme is exposed to a number of underlying risks relating to the Scheme’s investment strategy, these are summarised below:

Risk	Definition	Policy
Interest rates and inflation	The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in interest rates and inflation expectations.	To hedge 60% of the impact of interest rates and inflation on the value of the Scheme’s liabilities (measured on a gilts basis).
Liquidity	Difficulties in raising sufficient cash when required without adversely impacting the fair market value of the investment.	To maintain a sufficient allocation to liquid assets so that there is a prudent buffer to pay members benefits as they fall due (including transfer values), and to meet regulatory guidance around Page 7 providing collateral to the LDI manager.
Market	Experiencing losses due to factors that affect the overall performance of the financial markets.	To diversify this risk by investing in a range of credit markets across different geographies and sectors. • To appoint investment managers who actively manage this risk by seeking to invest only in debt securities where the yield available sufficiently compensates the Scheme for the risk of default.
Credit	Default on payments due as part of a financial security contract.	To diversify this risk by investing in a range of credit markets across different geographies and sectors.
Environmental, Social and Governance	Exposure to Environmental, Social and Governance factors, including but not limited to climate change, which can impact the performance of the Scheme’s investments.	To appoint managers who satisfy the following criteria, unless there is a good reason why the manager does not satisfy each criteria: i) Responsible Investment (‘RI’) Policy / Frameworkii) Implemented via Investment Processiii) A track record of using engagement and any voting rights to manage ESG factorsiv) ESG specific reportingv) UN PRI Signatory (or equivalent) The Trustee monitors the mangers on an ongoing basis.
Currency	The potential for adverse currency movements to have an impact on the Scheme’s investments.	The Scheme’s diversified growth and credit mandates hedge all currency risk back to Sterling.
Non-financial	Any factor that is not expected to have a financial impact on the Scheme’s investments.	Non-financial matters are not taken into account in the selection, retention or realisation of investments.

Appendix C

The Trustee have the following policies in relation to the investment management arrangements for the Scheme:

How the investment managers are incentivised to align their investment strategy and decisions with the Trustee’s policies.	As the Scheme is invested in pooled funds, there is not scope for these funds to tailor their strategy and decisions in line with the Trustees policies. However, the Trustee invests in a portfolio of pooled funds that are aligned to the strategic objective.
How the method (and time horizon) of the evaluation of investment managers’ performance and the remuneration for their services are in line with the Trustee’s policies.	The Trustee reviews the performance of all of the Scheme’s investments on a net of cost basis to ensure a true measurement of performance versus investment objectives. • The Trustee evaluates performance over the time period stated in the investment managers’ performance objective, which is typically 3 to 5 years. • Investment manager fees are reviewed annually to make sure the correct amounts have been charged and that they remain competitive.
The method for monitoring portfolio turnover costs incurred by investment managers and how they define and monitor targeted portfolio turnover or turnover range.	The Trustee does not directly monitor turnover costs. However, the investment managers are incentivised to minimise costs as they are measured on a net of cost basis.
The duration of the Scheme’s arrangements with the investment managers	• The duration of the arrangements is considered in the context of the type of fund the Scheme invests in. o For closed ended funds or funds with a lock-in period the Trustee ensures the timeframe of the investment or lock-in is in line with the Trustee objectives and Scheme’s liquidity requirements. o For open ended funds, the duration is flexible and the Trustee will from time-totime consider the appropriateness of these investments and whether they should continue to be held.
Voting Policy - How the Trustees expect investment managers to vote on their behalf	The Trustee has acknowledged responsibility for the voting policies that are implemented by the Scheme’s investment managers on their behalf.
Engagement Policy - How the Trustees will engage with investment managers, direct assets and others about ‘relevant matters’	The Trustee has acknowledged responsibility for the engagement policies that are implemented by the Scheme’s investment managers on their behalf. • The Trustees, via their investment advisers, will engage with managers about ‘relevant matters’ at least annually.

Appendix D

Collateral management policy

The Trustee will adhere to all relevant regulatory guidance and requirements in relation to leverage and collateral management within the Scheme’s liability hedging mandate (“LDI”).
The Trustee has a stated collateral management policy. The Trustee has agreed a process for meeting collateral calls should these be made by the Scheme’s LDI investment manager. The Trustee will review the collateral management policy regularly, or as soon as possible in the event of significant market movements.

The Trustee is targeting a level of collateral over and above that within the Scheme’s pooled LDI funds that is sufficient to withstand comfortably at least one collateral call from each of the Scheme’s pooled LDI funds.

The Trustees also have a framework for managing collateral in the pooled LDI funds.

Trigger	Action	Responsibility
The pooled LDI funds issue a capital call.	Assets sold from collateral waterfall below to meet capital call.	Instruction letter in place with L&G such that L&G can take action automatically.
Assets within the automatic collateral waterfall are insufficient to meet the next estimated capital call.	Other assets (LGIM DGF) are sold to top up the assets in the collateral waterfall.	L&G responsible for monitoring estimate of next capital call and the Trustee responsible for monitoring ARB balance and implementing any top-ups.
Pooled LDI mandate issues capital call but assets within the automatic collateral waterfall are insufficient and other liquid assets have already been exhausted.	Reduce the liability hedge according to the shortfall in the capital call.	N/A

The latest collateral waterfall is set out below. The assets are held with the same manager as the LDI mandate, which lowers the governance burden on the Trustees.

Manager	Asset Class	Dealing frequency	Notice period	Settlement period
L&G	L&G Absolute Return Bonds	Daily	6pm on T-2	T+2