BAILLIE GIFFORD Devon County Council Pension Fund 27 February 2015 Tom Wright and Patrick Edwardson
Our Relationship Appointed: 29 th May 2012 Strategy: Diversified Growth Portfolio Value: 241,626,198 istockphoto.com 1
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 2
What the Fund Invests in 3
Our Process What we do When we do it 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 4
% Baillie Gifford Devon County Council Pension Fund February 2015 Asset Allocation Since December 2008 Diversified Growth Fund Asset Class Weights Over Time 100 90 80 70 60 50 40 30 20 10 0 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** As at 31 st December 2014 * Cash includes net active currency position ** Reflects effective exposure in portfolio, including futures positions; cash adjusted accordingly 5
Fund Performance Performance 31 st December 2008 to 31 st December 2014 210 190 170 150 130 110 90 70 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% 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 6
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 Active Currency-1%** Special Opportunities 1% Insurance Linked 5% Absolute Return 8% Cash and Equivalents 7% Listed Equities 22%* Private Equity 2% Infrastructure 4% Property 2% Emerging Market Bonds 13% High Yield Credit 12% Commodities 5% Structured Finance 14% Investment Grade Bonds 6% BG Diversified Growth Fund, as at 31 st December 2014 Source: Baillie Gifford & Co Totals may not sum due to rounding We remain confident that the Fund can deliver on its objectives * 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 7
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 8
Appendices
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 Patrick Edwardson Head of Diversified Growth David McIntyre Investment Manager James Squires Investment Manager No change in investment process Partner 22 yrs experience 22 yrs with Baillie Gifford 7 yrs experience 7 yrs with Baillie Gifford 9 yrs experience 9 yrs with Baillie Gifford A team-based approach 9
Internal Resources 10
Our Long Term Return Expectations We have made a small reduction to our tenyear 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 31 st 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 11
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 istockphoto.com 12