As global financial market volatility persists throughout August, one pension fund has claimed that it is in a position to look for buying opportunities in the near future, rather than worrying about what damage the equity sell-off and decreased UK government bond yields may have on its funding levels

The Universities Superannuation Scheme (USS) says that it decided to take no risks earlier this year and altered its asset allocation. In a tactically defensive move, its investment team positioned the fund by reducing exposure to equities and increasing its cash holdings.

In a statement the scheme says it considered the possible after-effects of the financial crisis in 2008/2009 and the fact that the markets appeared "somewhat complacent" when it prepared for the recent sell-off.

The scheme also stated: "Without discounting serious medium to long-term issues for markets and economies, the current storm in the markets may in due course present some opportunities".  

USS maintains that it has "a long-term investment horizon" and says its long-term funding objective is to reduce the degree of investment risk even further. "A full triennial valuation of the scheme as at 31 March 2011 is underway and it is expected that the assumptions used at the last valuation in 2008 will be revised, but the results will not be available until early 2012."

The scheme went on to add in the statement: "We have long-term strategies and do not need to sell off assets at times like this when markets have fallen and fear prevails. USS is, therefore, well placed to weather the current volatile and uncertain market conditions."

However, the scheme does admit its funding levels ahead of the overhaul of the investments portfolio dropped slightly from being near fully funded (91%) at the beginning of this year, when the deficit was £3.65bn.

The confidence the USS has in its strategy may be tested to the limit this year however, as nervous investors continue to play havoc with the world's stock markets.

According to Jack Malvey, chief global market strategist for BNY Mellon Asset Management, the current market downturn sweeping the US and Europe could carry on until November, prompting a warning from consultant Towers Watson earlier this week that "the outcome of funding negotiations between employers and pension scheme trustees (is now) much less certain".

First published 19.08.2011

azeevalkink@wilmington.co.uk