Booker Pension Scheme

BOOKER LIMITED and MAKRO SELF SERVICE WHOLESALERS LIMITED

Statement of investment Principles - September 2020

Pension Scheme SIP September 2020

Implementation Statement 2021

1. Introduction

The Trustee of the Booker Pension Scheme (“the Scheme”) has drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995 (“the Act”) and subsequent legislation including the Occupational Pension Schemes (Investment) Regulations 2005.

The Statement is intended to affirm the investment principles that govern decisions about the Scheme’s investments. The specifics of the Scheme’s investment arrangements are detailed in the Investment Policy Implementation Document, which is available on request.

In preparing this Statement the Trustee has consulted Booker Limited (the “Company”) to ascertain whether there are any material issues of which the Trustee should be aware in agreeing the Scheme’s investment arrangements.

In preparing this Statement and considering the appropriate investments for the Scheme the Trustee has obtained and considered the advice of Mercer Limited (“Mercer”), who are regulated by the Financial Conduct Authority (“FCA”), and whom the Trustee believes to be suitably qualified to provide such advice. The advice received and arrangements implemented are, in the Trustee’s opinion, consistent with the requirements of Section 36 of the Pensions Act 1995 (as amended).

The objectives set out in this Statement, and the risks and other factors referenced, are those that the Trustee determine to be financially material considerations in relation to the Scheme.

2. Investment Objectives

The Trustee’s primary objective is to invest the Scheme’s assets in the best interest of the members and beneficiaries. In addition the Trustee will pay regard to, and seek to reflect within its investment arrangements, the Company’s objectives concerning the potential size and incidence of contribution payments. In the case of a potential conflict of interest the Trustee will act in accordance with the Trustee’s policy and procedure for managing conflicts of interest.

In seeking to achieve this primary objective, the Trustee also considers a number of secondary objectives:

To invest the Scheme’s assets in such a manner that members’ benefit entitlements are paid as and when they fall due;
To achieve a return in line with, or in excess of the investment return assumed in the funding of the Scheme (which itself is linked to the investments held), and;
To improve the funding position of the Scheme while seeking to reduce volatility in the funding level and contribution requirements, over time, as warranted by market conditions.

3. Risk Management and Measurement

There are various risks to which any pension scheme is exposed, which the Trustee believes may be financially material to the Scheme. The Trustee’s policy on risk management over the Scheme’s anticipated lifetime is set out below.

The risk of deterioration in the Scheme’s funding level and hence an increase in the reliance on the Company for contributions. The Trustee monitors the funding level on a quarterly basis and discusses whether any actions are required, with input from the Scheme actuary and investment adviser.
The risk of deterioration in the Company covenant. The Trustee has considered the covenant in setting the investment strategy and monitors covenant on a regular basis, including consideration of reports from a professional covenant adviser.
The Trustee recognises that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Scheme’s liabilities as well as producing more short-term volatility in the Scheme’s funding position. The Trustee takes advice on the matter and (in light of the objectives noted in Section 2) carefully considers the implications of adopting different levels of risk.
The Trustee recognises the risks that may arise from lack of diversification of investments. Subject to managing the strategic allocation between growth and matching assets, the Trustee aims to ensure the asset allocation policy results in a diversified portfolio. Recognising the size of the Scheme’s assets and the need to diversify, investment exposure to most markets is obtained via pooled vehicles.
The risk that investment returns fail to keep pace with inflation. In order to reduce this risk, the Scheme invests in assets with an indirect link to inflation and assets with a direct link to inflation.
The risk that the investment managers, in the day-to-day management of the assets, will not achieve the rate of investment return expected by the Trustee. Arrangements are in place to monitor both the investment strategy as a whole and the Scheme’s investment managers.
The Trustee recognises the importance of managing operational risks, such as counterparty risk. It works with its advisers and investment managers to understand the extent of such risks but delegates the day to day control of such risks to the managers. The safe custody of the Scheme’s assets is delegated to professional custodians.
The risk that funds do not provide access for investment or withdrawal of monies when required (liquidity risk). This is monitored by considering the level of cash flows required by the Scheme and is managed by holding an appropriate amount of readily realisable investments. The majority of the Scheme’s investments are in quoted markets and are as readily realisable as the Trustee feels is appropriate given the nature of the cashflow position and the profile of the Scheme’s liabilities, both of which are monitored by the Trustee.
There is a risk that Environmental, Social and Corporate Governance (ESG) concerns, including climate change, have a financially material impact on the return on the Scheme’s assets. The management of ESG related risks is delegated to Investment Managers, with oversight from the Trustee. See Section 8 for our policies in this regard.

4. Investment Strategy

Current Strategy

Given the investment objectives, the Trustee has adopted the investment strategy (the mix of asset types) detailed in the table below.

The Trustee believes that the investment strategy is appropriate for controlling the risks identified in section 3. The actual asset allocation may differ from the strategic benchmark as a result of market movements.

Asset Class	Benchmark Allocation (%)
Growth Assets
Diversified Growth	21
Developed Market Equities (managed using total return swaps)	15
Emerging Markets Multi-Asset	2
Matching Assets
Corporate Bonds (buy and maintain)	45
Liability Driven Investment	10
Property	7

Taking into account the Scheme’s liability and membership profile, the Company covenant and the Company’s objectives, the Trustee has chosen to retain a strategic allocation to growth assets of approximately 38% until up to 2028.

The Trustee has also focussed on reducing risk within the sub-portfolios as follows:

Diversifying the growth portfolio using absolute return Diversified Growth funds and Emerging Markets Multi-Asset investments. The Trustee will consult with the Company on the nature / type of diversified growth funds used.
Improved matching of inflation and interest rates through liability driven investment, without having to sell growth assets. This portfolio is designed to align with the Scheme’s liability cashflows. The levels of any hedging through liability driven investment will be developed by the Trustee in conjunction with its advisers and in consultation with the Company, and documented through the Investment Management Agreement in place with the liability driven investment manager.
More efficient corporate bond management, via the adoption of a “buy and maintain” approach.

Long Term Strategy

The Trustee targets a long term strategy with a lower level of risk, commensurate with the expected future liability profile. It is expected that the current investment strategy is capable of delivering the long term lower risk investment strategy by 2028. The long term target strategy is expected to be able to generate a long term investment return of “gilts + 0.5% p.a.” In practice the target will be reviewed over time to ensure it remains appropriate.

5. Realisation of Investments

In general, the investment managers have discretion in the timing of realisation of investments and in considerations relating to the liquidity of those investments.

The Trustee monitors the allocation between the appointed managers and between asset classes.

6. Additional Assets

The Trustee is responsible for the investment of Additional Voluntary Contributions (“AVCs”) paid by members. The Trustee reviews the investment performance of the AVC funds on a regular basis and communicates with members regarding their AVC investments.

7. Investment Manager Arrangements

Overview

The Scheme’s investment managers are appointed based on their capabilities and suitability as regards meeting the Scheme’s objectives. Their appointments are therefore also based on their perceived likelihood of achieving the expected return and risk characteristics required for the asset class being selected for.

The Trustee receives advice from its investment advisers in relation to forward-looking assessments of a manager’s ability to outperform over a full market cycle, for mandates where outperformance is the objective. This view will be based on the adviser’s assessment of the manager’s idea generation, portfolio construction, implementation and business management, in relation to the particular investment portfolios(s) that the Scheme invests in. The adviser’s manager research ratings assist with due diligence and questioning managers during presentations to the Trustee and are used in decisions around selection, retention and realisation of manager appointments.

For mandates where outperformance is not the primary goal, such as liability driven investment, the Trustee will seek guidance from the investment adviser in relation to their forward looking assessment of the manager’s ability to achieve the stated mandate objectives.

If the investment objective for a particular investment manager’s mandate changes, the Trustee will review the appointment, with the investment adviser’s assistance, to ensure it remains appropriate and consistent with the Trustee’s wider investment objectives.

Where appointments are actively managed, the managers are incentivised through performance targets. An appointment will be reviewed following periods of sustained underperformance or failure to meet the mandate objectives, and the Trustee has put in place quarterly monitoring to seek to manage this risk. The Trustee will review the appropriateness of using actively managed funds (on an asset class basis) periodically.

Some appointments are managed on a “bespoke pooled” basis: the Trustee has specified criteria in the investment manager agreements for the respective manager to be in line with the Trustee’s specific requirements. For example, the Trustee has appointed a liability driven investment manager, and the mandate agreements and guidelines are tailored to the specific requirements of the Trustee.

Where the Trustee invests in non-bespoke pooled funds it accepts that there is no ability to specify the risk profile and return targets of the manager. However, appropriate mandates are selected to align with the overall investment strategy as documented in this Statement.

Investment Manager Remuneration

The investment managers are remunerated by way of a fee calculated as a percentage of assets under management. In each case, the principal incentive is for the investment manager to retain their appointment (in full), by achieving their objectives, in order to continue to receive their fee.

The Trustee review periodically (typically triennially) investment manager fee levels, including the level of transparency and the total expense ratio charges.

Investment managers are not remunerated based on portfolio turnover.

Evaluating Investment Managers

Investment managers are aware that their continued appointment is based on their success in delivering the objectives of the mandate for which they have been appointed to manage. If the Trustee is dissatisfied, then it will look to replace the manager.

The Trustee meets with its investment managers as deemed appropriate. During such meetings the Trustee is able to review the decisions made by the managers, including investment decisions, voting history (although voting rights are relatively rare given the nature of the Scheme’s investments) and engagement activity with investee companies, and can question such activities.

The Trustee considers the investment adviser’s investment research and ESG research ratings within quarterly reporting. Through these ratings, the Trustee is able to assess for example how each investment manager embeds ESG into its investment process and how each manager’s investment philosophy aligns with the Trustee’s policies.

Time horizon and Duration of Appointments

The Trustee receives investment manager performance reports on a quarterly basis, which show performance information over 3 months, 1 year and 3 years. The Trustee reviews the performance of the investments on an absolute basis and relative to defined benchmarks (over the relevant period), net of fees. The Trustee’s focus is long-term performance but the Trustee will put a manager “on watch” if there are performance concerns.

If a manager is not meeting its performance objectives, over a sustained period of time, and after consideration of all relevant factors, the Trustee may take the decision to terminate the manager.

The Trustee is a long-term investor. Accordingly, it does not seek to change the investment arrangements on a frequent basis.

All investment portfolios invested in are open-ended with no set end date for the arrangement. The Trustee will retain an investment manager unless:

There is a strategic change to the overall strategy that no longer requires exposure to that asset class or manager; or
The manager appointment has been reviewed and the Trustee has decided to terminate the manager.

Portfolio turnover costs

The Trustee does not monitor portfolio turnover costs and has not set portfolio turnover targets; rather the Trustee assesses investment performance net of the impact of the costs of such activities.

8. Environmental, Social and Governance (ESG) Considerations

The Trustee believes that ESG issues may have an impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustee also recognises that long-term sustainability issues, particularly climate change, present risks and opportunities that increasingly require explicit consideration.

The Trustee accordingly consider these issues in the context of anticipated time horizon over which the assets will be held.

The Trustee does not directly manage the Scheme’s investments, and the investment managers have full discretion to buy and sell investments within the various portfolios, within the guidelines of their mandates. ESG considerations are however taken into account in the selection, retention and realisation of investments in the following ways:

The Trustee considers the ESG research ratings published by our investment advisers, Mercer, when monitoring the Scheme’s investments. These ratings are also considered as part of any new selection of investment funds.
In meetings with the Scheme’s investment managers, where relevant, ESG issues are discussed and the manager is expected to discuss voting and engagement activities carried out on behalf of the Trustee for mandates where this is appropriate.

The investment managers are expected to evaluate ESG factors (including climate change considerations) where practical within the terms of their mandate and to exercise voting rights and stewardship obligations attached to the investments in accordance with their own corporate governance policies and current best practice (including the UK Corporate Governance Code and UK Stewardship Code).

Whilst members’ views are not taken into account in the selection, retention and realisation of investments, the Trustee welcomes views from members. Members have a variety of methods by which they can make views known to the Trustee.

9. Review of this Statement

The Trustee will review this Statement at least once every three years and without delay after any significant change in investment policy. Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustee reasonably believes to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments. The Trustee will also consult with the Company prior to making any change to this Statement.

For and on behalf of the Trustee of the Booker Pension Scheme

Date: September 2020

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Booker Pension Scheme

BOOKER LIMITED and MAKRO SELF SERVICE WHOLESALERS LIMITED

Statement of investment Principles - September 2020

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