91Èȱ¬

Introduction

This statement details the principles governing the investment policy of the 91Èȱ¬ Pension Scheme (the Scheme). It has been prepared by the Trustee of the Scheme, 91Èȱ¬ Pension Trust Limited (the Trustee), having been advised by the Trustee’s investment consultant and in discussion with the British Broadcasting Corporation (the 91Èȱ¬) as the Scheme’s sponsor.

It complies with the requirements of the Pensions Act 1995, as amended, and the Occupational Pension Schemes (Investment) Regulations 2005 (the Investment Regulations).

It is reviewed each year and without delay after any significant change in investment policy.

Objectives

The Trustee is responsible for stewardship of the Scheme’s assets. Its main objectives are to ensure that:

• all beneficiaries receive the benefits to which they are entitled under the Rules of the Scheme; and
• there are sufficient assets to meet the Scheme’s liabilities as they fall due.

To this end the Trustee has a long-term objective of being fully funded, on a basis which would allow it subsequently to run a low risk investment policy with limited likelihood of requiring recourse to the 91Èȱ¬ for additional contributions. Based on the current agreed Schedule of Contributions and investment policy, the Trustee is targeting the achievement of this objective by 2028. Over this time frame, in line with regulatory guidance, the Trustee targets an appropriate balance between risk and return.

Investment policy

The Trustee sets investment policy. The Trustee consults the 91Èȱ¬ and takes advice from the Scheme Actuary, its investment consultants and other advisers as appropriate. The Trustee engages independent members of its Investment Committee with relevant investment experience and is supported by an in-house investment team. The investment policy is reviewed at least annually. The Trustee has established 91Èȱ¬ Pension Investment Limited, regulated by the FCA, to exercise investment discretion in relation to specific aspects of the Scheme’s portfolio.

The Trustee delegates responsibility for implementing investment policy to its Investment Committee. The Investment Committee appoints, monitors the performance of and removes investment managers. It oversees asset allocation and directs the cash flow of the Scheme amongst investment mandates, adjusting portfolios as necessary. It monitors, reviews and recommends changes to the Trustee’s policies in respect of investment, corporate governance, responsible investment and engagement.

Matters of substance at any Investment Committee meeting are decided by vote. If there is not unanimity the matter is referred to the Trustee Board for consideration.

Investment beliefs

In setting policy, the Trustee has regard to a set of investment beliefs developed in discussions with its investment consultant, the in-house team, the Investment Committee and other parties. These beliefs can be found in Appendix 1.

The investment beliefs provide a starting point for strategic asset allocation reviews and other investment discussions. Fundamentally the Trustee believes and takes account of the fact that the 91Èȱ¬ underwrites the liabilities of the Scheme. The Trustee monitors the covenant of the 91Èȱ¬ on a continuous basis to assess its ability to support the Scheme.

The beliefs are reviewed annually.

Investment management

The Trustee delegates day to day investment decisions to suitably qualified independent investment managers. Their activities are defined and constrained by detailed agreements. Investment managers have discretion to buy and sell investments within the terms of their agreements.

When investing in a pooled investment fund, the Trustee ensures the investment objectives and guidelines of the fund are consistent with the Trustee’s investment policies. Where segregated mandates are used, the Trustee sets explicit guidelines within the investment management agreement where it is appropriate to do so.

The Trustee employs a number of managers with specialisms in different asset classes and regions and varying investment styles. A performance monitoring agency measures their performance, and that of the Scheme.

Manager fees are usually charged as a proportion of assets under management. Additional fees, such as transaction charges and performance fees may also be incurred. Fees are negotiated individually when a manager is appointed and are reviewed periodically to ensure that the Scheme receives value for money from its relationships with investment managers and other suppliers. The Trustee monitors a broader measure of investment costs which includes management fees, commissions, administration and custody costs, property expenses and other investment governance and advisory costs.

The Trustee selects managers with the expectation of a long term appointment, although investment management agreements may provide for different durations according to asset class.

Managers’ investment strategy and decision-making, including portfolio turnover, are monitored and reviewed regularly to assess alignment with Trustee policies. This includes specific consideration of the Scheme’s Responsible Investment Policy (see 11 below). Should the monitoring process reveal that a manager’s investment strategy is not aligned with the Trustee’s policies, the

Trustee will engage with the manager to discuss how alignment may be improved. If, following engagement with the manager, it is the view of the Trustee that the degree of alignment remains unsatisfactory, the arrangements with the manager may be altered or their appointment terminated.

Managers are listed in the Scheme’s annual report and accounts, which also contains information about investment performance, asset allocation and major investment decisions taken during the year.

Types of investments held

The Trustee invests in a mix of real and monetary assets deemed suitable for pension schemes, balancing expected returns against volatility. Derivative instruments, potentially involving leverage, are used to manage the Scheme’s risk and for efficient portfolio management purposes.

The Trustee carries out due diligence and takes advice from its investment consultants to ensure new areas of investment are appropriate.

The balance between different types of investments

Asset allocation is driven by the specific characteristics of the Scheme, in particular its demography, the pattern of liabilities, the funding of the Scheme and the risk tolerance of the Trustee and 91Èȱ¬. The Trustee sets the strategic asset allocation which is reviewed following periodic asset liability modelling (ALM) studies that consider the full range of investment opportunities available to the Scheme, expected returns on investments and changes to the funding position.

Following strong investment returns and improvements in the Scheme’s funding position, the Trustee has reduced the Scheme’s allocation to riskier growth assets over recent years. This is consistent with regulatory guidance and the Trustee’s belief that its risk-taking capacity is limited, and so as not to take more risk than is required to meet its objectives. The Scheme’s growth allocation is expected to fall further by 2028.

The Scheme’s strategic asset allocation at the end of March each year is shown in the Scheme’s annual report and accounts. The Investment Committee can deviate from the strategic allocation within agreed ranges set by the Trustee. If the Scheme’s allocation to any asset class moves outside its target range due to market movements, the Investment Committee will notify the Trustee and take appropriate steps to rectify the situation.

The methodology for changing the strategic asset allocation is periodically revisited to ensure that changes to the strategic asset allocation are appropriate.

Liquidity

The Scheme is closed to new members and is maturing. The Trustee manages the Scheme’s liquidity position to ensure that it has sufficient cash to pay benefits as they fall due and to meet the Scheme’s other financial obligations.

The Trustee monitors the overall allocation to assets that are not admitted for trading on regulated markets. The Trustee engages in scenario planning to project the pace at which its exposure to illiquid assets could be reduced over time, and to determine the assets it would sell if it needed to raise additional liquidity or collateral.

The Trustee stress tests the Scheme’s collateral and liquidity positions to ensure that the Scheme should be able to withstand significant adverse movements in markets, for example rising bond yields.

Risk

The Trustee recognises that the Scheme is exposed to a number of investment and operational risks. It gives qualitative and quantitative consideration to these risks when deciding investment policy, strategic asset allocation, the investment manager structure, choice of managers, the terms of its agreements and other aspects of the ongoing management of the Scheme. The quality of the sponsor’s covenant is an integral consideration in determining the amount and nature of investment risk that it is appropriate for the Scheme to take.

The Trustee maintains a risk register of the key risks, including investment risks, to which the Scheme is exposed. The register rates the impact and likelihood of the risks, and summarises existing mitigations and additional actions. It is reviewed annually by the Trustee Board.

Further details on the types of investment risks identified and how they are mitigated are shown in Appendix 2.

Additional Voluntary Contributions (AVCs)

Some members of the Scheme can pay AVCs to the Scheme, in accordance with separate provisions published by the Trustee. The funds in which members can choose to invest their AVCs are reviewed regularly, to ensure that they are well managed and represent good value. The Trustee has the right to vary the arrangements. In this the Trustee is advised by its investment consultants. 

Responsible investment

The Trustee recognises that with ownership comes responsibility and it is committed to exercising its influence and control to promote the long term sustainability of the Scheme’s investments.

In the interests of members and aligned with the goals of the Paris Agreement, the Trustee has committed, consistent with its fiduciary obligations, to managing the investment portfolio in line with achieving net zero greenhouse gas emissions by 2050.

The Trustee’s approach to responsible investing, including how it works with its investment managers, is set out in the Responsible Investment Policy which is an Appendix to this document. This can be viewed on the Scheme’s website, together with the Scheme’s voting and engagement reports.

Appendix 1 – Investment Beliefs

Belief: A high level of governance is required to manage a large Scheme with a diverse set of assets.

Consequences: The Scheme benefits from the knowledge and experience of independent experts who sit as full members of the Board and Investment Committee. An in-house investment team supports the Investment Committee on all aspects of investment and specified mandates are delegated to 91Èȱ¬ Pension Investment Ltd. The Investment Committee reviews the resources available to ensure there is the right set of skills and sufficient in-house capacity to oversee the management of the Scheme’s assets. The Trustee seeks advice from external investment consultants and lawyers when making decisions.

Belief: The Trustee accepts that it is necessary to take risk to achieve returns above the risk-free rate. The Trustee has a long term approach to risk and return which it believes is consistent with the Scheme’s time horizon. However, the Trustee’s risk-taking capacity is limited by prudential considerations including the capacity of the Scheme and the 91Èȱ¬ as sponsor to tolerate an adverse outcome.

Consequences: The Scheme endeavours to set clear and realistic long term investment objectives with a focus on delivering sufficient returns to pay benefits at a level of risk that is acceptable to the Trustee and the Sponsor. The Trustee monitors the Scheme’s risks carefully and undertakes stress testing and scenario analysis as part of its decision making process. The Trustee has set its asset allocation in order for the Scheme not to take more risk than is required to meet its objectives. The Trustee seeks to minimise what it perceives to be unrewarded risks where it is cost effective to do so.

Belief: The Trustee believes that it is appropriate to hedge a material amount of the Scheme’s interest rate and inflation exposure, to mitigate what would otherwise be among the Scheme’s biggest risks. The Trustee also believes that the relative importance of longevity risk is increasing as other risks are mitigated.

Consequences: The Scheme has a liability hedging programme, which aims to protect the Scheme against adverse changes in interest rates, inflation and longevity. The liability hedging programme involves investment in matching assets such as inflation linked government bonds and derivatives which can be expected to deliver future real cash flows to the Scheme with a high degree of certainty. A longevity swap has also been implemented to hedge some of the Scheme’s longevity risk. The Trustee pays close attention to managing liquidity, to the exposure to unfunded derivatives and to counterparty risks that can be associated with liability hedging activity.

Belief: The Trustee believes that riskier assets such as equities and credit are likely to deliver a higher return, over the long term, than government bonds or cash. The Trustee also believes that this risk can be mitigated, to some extent, by diversification.

Consequences: The Trustee has diversified the Scheme’s exposure across different investments and risk factors, such as equity, property, credit, illiquidity and other areas. The Trustee has also sought to reduce risk by including secure assets with long term cash flows that can be expected to match, albeit with some degree of uncertainty, the benefits that the Scheme will be required to meet many years into the future.

Belief: The timing of moves into and out of asset classes can make a large difference to the long term returns that are actually achieved. However, the Trustee is of the opinion that it is extremely difficult to predict short term market movements and that the Scheme does not have a comparative advantage in this area.

Consequences: The Trustee pays close attention to the valuations of asset classes and markets and their long term expected returns. The Trustee receives advice from its investment consultant and an economic research firm to support its strategic investment decisions. The Trustee will from time to time make adjustments to the portfolio, including rebalancing, to reflect market conditions and the Scheme’s investment policy and objectives.

Belief: The Trustee believes that financial markets are not always efficient and that there may from time to time be opportunities for skilful managers to add value. The Trustee is principally concerned with net of fee performance and is only willing to pay high fees if it has strong grounds to trust a manager’s ability to achieve a higher net return than a lower cost solution.

Consequences: The Trustee employs a number of managers with specialisms in different asset classes and regions and varying investment styles. The Investment Committee monitors closely the performance of its managers and all investment costs to ensure that active management is adding value taking account of fees.

Belief: The Trustee recognises that with ownership comes responsibility and it is committed to exercising its influence and control to promote the long term sustainability of the Scheme’s investments. The Trustee believes that well governed companies that manage their businesses in a responsible way will produce higher returns over the long term.

Consequences: The Scheme has published a Responsible Investment Policy and requires its investment managers across all asset classes to take ESG factors into account when making investment decisions. The Scheme employs a voting and engagement overlay service to engage with investee companies, public policy-makers and regulators, promoting high standards on ESG issues and a sustainable environment for the Scheme’s investments. The Scheme seeks to support collaborative initiatives on responsible investment and stewardship, in order to make greater impact and best use of resources.

Belief: The Trustee recognises that climate change is a long-term risk for the Scheme and has the potential to impact the Scheme’s investments, liabilities and funding position. The Trustee understands that financial risks and opportunities will arise from the global transition to a low carbon economy, as well as from long-term physical impacts of climate change.

Consequences: The Trustee monitors the Scheme’s exposure to transition and physical risks associated with climate change by undertaking scenario analysis and tracking a range of climate metrics. The Trustee seeks to take advantage of investment opportunities which will arise from the transition to a low-carbon economy, such as renewable energy and infrastructure, where compatible with the Scheme’s financial objectives, while recognising that some carbon-intensive industries will be necessary during some of the transition. Investment managers, service providers and advisers are required to take climate change related factors into account in their activities on behalf of the Scheme. The Scheme supports the Paris Aligned Investment Initiative and is a signatory to the Net Zero Asset Owner Commitment. The Trustee recognises the current limited availability and inconsistency of emissions data across asset classes. The Trustee will review targets regularly to ensure that they remain appropriate.

Appendix 2 – Risk