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TRANSCRIPT
BAILLIE GIFFORD
27 February 2015
Tom Wright and Patrick Edwardson
Devon County Council Pension Fund
Baillie Gifford Devon County Council Pension Fund February 2015
1
Our Relationship
Appointed:
29th May 2012
Strategy:
Diversified Growth
Portfolio Value:
£241,626,198
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Baillie Gifford Devon County Council Pension Fund February 2015
2
Diversified Growth Fund - Our Objectives
Return
To outperform the UK base rate by at least 3.5% per annum (net of fees) over rolling 5 year periods
Risk
Annualised volatility of less than 10% over rolling 5 year periods
Baillie Gifford Devon County Council Pension Fund February 2015
3
What the Fund Invests in
Baillie Gifford Devon County Council Pension Fund February 2015
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Our Process – What we do
Assess long run returns for each asset class
Consider current situation
Ask: what might happen from here?
Allocate to each asset class according to:
Absolute valuations
Relative valuations
Risk characteristics
Portfolio context
When we do it
Baillie Gifford Devon County Council Pension Fund February 2015
5
0
10
20
30
40
50
60
70
80
90
100
Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
%
Cash and Equivalents*
Special Opportunities
Insurance Linked
Absolute Return
Government Bonds
Infrastructure Bonds
Infrastructure
Emerging Market Bonds
Commodities
Structured Finance
Investment Grade Bonds
High Yield Credit
Property
Private Equity
Listed Equities**
Asset Allocation Since December 2008
Diversified Growth Fund Asset Class Weights Over Time
As at 31st December 2014
* Cash includes net active currency position ** Reflects effective exposure in portfolio, including futures positions; cash adjusted accordingly
Baillie Gifford Devon County Council Pension Fund February 2015
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Fund Performance
Performance – 31st December 2008 to 31
st December 2014
Source: Bloomberg, Baillie Gifford & Co. Total returns from 31/12/08 to 31/12/14, net of fees, in sterling Rebased to 100 Indices (sourced from Bloomberg): Global Equities – FTSE All-World index; Base Rate – UK Bank of England
Positive performance delivered with low volatility
70
90
110
130
150
170
190
210
Dec-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14
BG Diversified Growth Pension Fund Global Equities Base Rate +3.5%
Baillie Gifford Devon County Council Pension Fund February 2015
7
Positioning
A cautiously positioned portfolio remains appropriate
Invested across a broad range of asset classes
Substantial allocations to more defensive asset classes such as cash and structured finance
Asset Allocation
BG Diversified Growth Fund, as at 31st December 2014
Source: Baillie Gifford & Co Totals may not sum due to rounding
* Reflects effective exposure in portfolio, including futures positions. Cash adjusted accordingly ** This number shows the unrealised P&L of the Active Currency positions open in the Fund as at 31
st
December 2014
We remain confident that the Fund can deliver on its objectives
Active Currency-1%**
Cash and Equivalents 7%
High Yield Credit
12%
Absolute Return 8%
Listed Equities 22%*
Insurance Linked 5%
Property 2%
Private Equity 2%
Investment Grade Bonds 6%
Structured Finance 14% Commodities 5%
Infrastructure 4%
Emerging Market
Bonds 13%
Special Opportunities 1%
Baillie Gifford Devon County Council Pension Fund February 2015
8
Our Current Views
Outlook
Continued supportive monetary policy and falling oil prices should be good for global growth
Risks remain
Uncertainty around the timing and impact of US interest
rate rises
Deflation in the Eurozone
Continued political tensions (the rise of Syriza,
Russia/Ukraine conflict, Middle East)
Valuation
Many asset classes appear priced to deliver lower returns
than in recent years
Appendices
Baillie Gifford Devon County Council Pension Fund February 2015
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Diversified Growth Team
Dedicated team. Three managers plus three analysts and two investment assistants
Gradual increase in resources since inception
Continue to draw upon a wealth of internal and external resources
Regular meetings with Baillie Gifford Rates and Currencies, Credit and Equity teams
No change in investment process
Patrick Edwardson Head of Diversified Growth
Partner
22 yrs’ experience
22 yrs with Baillie Gifford
David McIntyre Investment Manager
7 yrs’ experience
7 yrs with Baillie Gifford
James Squires Investment Manager
9 yrs’ experience
9 yrs with Baillie Gifford
A team-based approach
Baillie Gifford Devon County Council Pension Fund February 2015
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Internal Resources
Baillie Gifford Devon County Council Pension Fund February 2015
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Our Long Term Return Expectations
We have made a small reduction to our ten-year estimate for inflation, largely to reflect current environment
Prospective nominal returns remain low, though many asset classes still offer a decent return over short term interest rates
Some market valuations are higher than six months ago, hence the lower return expectation
This is the case for equities, infrastucture, high yield bonds and insurance linked securities
As at 31st December 2014
10 Year %
Long Term %
Expected Return on Cash (UK base rate) 2.25 3.75
Expected UK CPI Inflation 2.00 2.25
Expected Return over Cash
10 Year %
Long Term %
UK Government Bonds -0.45 0.25
UK Index – Linked Government Bonds -0.35 0.00
Investment Grade (sterling) 0.75 1.25
High Yield Bonds 1.65 2.75
Senior Loans 2.50 2.00
Equities 3.50 3.50
UK Property 3.40 2.25
Infrastructure 3.65 3.25
Emerging Market Bonds 3.65 2.00
Commodities 1.00 1.00
Insurance Linked 2.75 3.00
Note: Expected returns exclude alpha generation from our exposure
Baillie Gifford Devon County Council Pension Fund February 2015
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Robust Risk Management
Central to our investment process
Four key pillars to our risk management process:
Diversification guidelines
Pragmatic use of risk models
Scenario analysis
Peer review and challenge
Focus on risk reflected in:
Low volatility since inception
Resilience in periods of market stress
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