Statement of Investment Principles – September 2020 

1. Introduction 

The Trustees of the Weetabix Group Pension Scheme (the “Scheme”) have drawn up this  Statement of Investment Principles (“the Statement”) to comply with the requirements of Section  35 of the Pension Act 1995 (“the Act”), the Occupational Pension Scheme (Investment)  Regulations 2005 and associated legislation including the Occupational Pension Schemes  (Investment) Regulations 2005 (as amended). The Trustees have consulted a suitably qualified  person by obtaining written advice from Mercer Limited (“Mercer”). The Trustees, in preparing  this Statement, have also consulted the Sponsoring Company (“the Company”), in particular in  relation to the Trustees’ objectives. 

This Statement replaces the previous statement dated September 2019. 

The Trustees seek to maintain a collaborative approach with the Company on investing the  Scheme’s assets and will discuss any proposed changes to this Statement with the Company.  However, the Trustees’ fiduciary obligations are to the Scheme’s members and will take  precedence over the Company’s wishes. 

The Scheme’s investment arrangements, based on the principles set out in this statement, are  detailed in the Scheme’s Summary of Investment Arrangements “SIA” document. Both are  available to members on request. 

Mercer has confirmed in writing to the Trustees that it has the appropriate knowledge and  experience to give the advice required by the Pensions Act 1995 and the Occupational Pension  Scheme (Investments) Regulations 2005. 

The Scheme is governed by its Trust Deed and Rules, which sets out all of the benefits in detail  and specifies the Trustees’ investment powers. These investment powers do not conflict with this  Statement. 

2. Process for Choosing Investments 

The Trustees have appointed Mercer to act as discretionary investment manager to implement a  Cashflow Driven Investment (“CDI”) solution whereby the Scheme invests in such a way that  expected asset cashflows should broadly match a proportion of the Scheme’s expected liability  cashflow profile whilst still targeting a return in excess of gilts (noting that the intention is to match  as high a proportion as possible, subject to the level of expected return required). 

In this capacity, and subject to agreed restrictions, a majority of the Scheme’s are invested in  multi-client collective investment schemes (“Mercer Funds”) comprised of a range of fixed income  instruments such as corporate bonds, high yield debt, multi-asset credit, secured finance, gilts,  Liability Driven Investment and senior private debt. The Mercer Funds are domiciled in Ireland  (for traditional asset classes) and in Luxembourg (for private markets assets). The Ireland domiciled collective investment schemes are managed by a management company (Mercer  Global Investments Management Limited (“MGIM”)) and the Luxembourg-domiciled funds are  managed by Mercer Alternatives (Luxembourg) S.à r.l. and, respectively, these entities have  appointed Mercer Global Investments Europe Limited (“MGIE”) and Mercer Alternatives AG  (“Mercer AG”) as investment managers of the Mercer Funds.

In practice, assets in the Mercer Funds are invested with third party fund managers based in  countries such as Ireland, UK and USA. Mercer and its affiliates have expertise in identifying,  selecting and combining highly rated fund managers who are best placed and resourced to  manage the Scheme’s assets on a day-to-day basis.  

The Scheme also invests a small portion of assets in a property fund with an Patrizia AG (“Patrizia”); the UK Value 2 Fund. 

In considering the appropriate investments for the Scheme, the Trustees have obtained and  considered (and will continue to obtain and consider) the written advice of Mercer, whom the  Trustees believe to be suitably qualified to provide such advice. The advice received and  arrangements implemented are, in the Trustees’ opinion, consistent with the requirements of  Section 36 of the Pensions Act 1995 (as amended). 

3. Investment Policy and Risk 

Overall investment policy falls into two parts. The strategic management of the assets is  fundamentally the responsibility of the Trustees acting on advice from their investment  consultant, and is driven by their investment objectives as set out below. The remaining  elements of policy are part of the day to day management of the assets which is delegated to professional investment and asset managers in and outside of the CDI solution. These  arrangements are described in the Statement of Investment Arrangements (“SIA”). The format of  this SIA is designed to provide a logical statement rather than an ordered response to the Act.  The Trustees believe, however, that it incorporates a response to all the requirements of the Act. 

4. Investment Objectives 

The Trustees’ objective is to invest the Scheme’s assets in the best interest of the members and  beneficiaries and in the case of a potential conflict of interest, in the sole interest of the members  and beneficiaries. Within this framework, the Trustees have carefully considered the Scheme’s  liquidity requirements and expected time horizon given the Technical Provisions assumptions.d  Based on this, the Trustees have agreed a number of objectives to help guide them in their  strategic management of the assets and control of the various risks to which the Scheme is  exposed. The Trustees’ primary objectives are set out below: 

▪ To ensure the Scheme’s obligations to its beneficiaries can be met; 

▪ To achieve an asset return above the return from gilts over the longer term, whilst recognising  the need to balance risk control and return generation; 

▪ To ensure consistency between the Scheme’s investment strategy and the return as well as  Technical Provisions assumptions used by the Scheme Actuary; 

▪ To pay due regard to the Company’s interests in the size and incidence of employer  contribution payments. 

The objectives set out above and the risks and other factors referenced in Section 5 of this  Statement are those that the Trustees determine to be financially material considerations. Non financial considerations are discussed in Section 12.

5. Risk Management and Measurement 

The Trustees consider risk as the likelihood of failing to meet the objectives set out above and  have, on advice from Mercer, taken several measures to minimise this so far as possible. There  are various risks to which any pension scheme is exposed. The Trustees’ policy on risk  management, over the Scheme’s anticipated lifetime, is described below.  

The Trustees’ willingness to take on investment risk is dependent on the continuing financial  strength of the Company and its willingness to contribute to the Scheme. The strength of the  Company and its perceived commitment to the Scheme is monitored by the Trustees and the  overall level of risk being taken will be reviewed if either of these deteriorates. 

The Trustees recognise 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  accruing liabilities as well as producing more short-term volatility in the Scheme’s funding  position. The Trustees have taken advice on the matter and (in light of the objectives noted  above) considered carefully the implications of adopting different levels of risk. 

Whilst risk could lead to volatility in the funding level disclosed at a subsequent actuarial  valuation, it is felt that some risk is acceptable in view of the potential benefits of the expected  extra returns. The additional returns could lead to greater security for members of the Scheme  and lower costs falling on the Company although the Trustees recognise there are no guarantees  this will happen. 

The primary risk upon which the Trustees focus is that arising through a mismatch between the  Scheme’s assets and its liabilities. The Trustees aim to reduce this risk as much as practicable  through implementation of a CDI solution, the specific objectives of which are set out in Section  6, but the Trustees agree that some mismatch risk still exist under the agreed strategy. 

The Trustees have agreed an initial implementation asset allocation and rebalancing ranges, and  have delegated the implementation of the CDI solution, to Mercer (the external property holdings  are taken into account as part of setting the overall allocation). The asset allocation has initially  been set so that the expected return on the portfolio and the extent to which the Scheme’s assets  and liabilities are matched is sufficient, in the Trustees’ view, to meet the objectives outlined in  Section 4. 

The Trustees recognise that although the Scheme’s assets are invested in line with a CDI  solution, there may still be a mismatch between the interest-rate and inflation sensitivity of the  Scheme’s assets and liabilities due to the mismatch in duration between matching assets and  actuarial liabilities. The Trustees have obtained and considered the written advice of Mercer, whom the Trustees believe to be suitably qualified to provide such advice, in agreeing upon the  suitable level of matching assets to liabilities as part of the CDI solution. 

The Trustees recognise 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  accruing liabilities as well as producing more volatility in the Scheme’s funding position.  

Risks may also arise from the lack of diversification of investments. To control this risk, the  Trustees aim to ensure the asset allocation policy in place results in an adequately diversified  portfolio after obtaining and considering the written advice of Mercer. Investment exposure is  obtained via pooled vehicles managed across various asset classes by the investment  managers. 

To help the Trustees ensure the continuing suitability of the current investments the Mercer  provides the Trustee with regular reports regarding the performance of the underlying asset  managers appointed within the relevant Mercer Funds and the external property holdings to  enable the monitoring of differences between the expected and experienced levels of risk and  


There is a risk that the day-to-day management of the assets will not achieve the rate of  investment return expected by the Trustees. The Trustees recognise that the use of active  investment managers involves such a risk. However, for specific asset classes it believes that  this risk is outweighed by the potential gains from successful active management. Likewise,  passive management will be used for one of a number of reasons, namely to diversify and reduce  risk and when investing in markets deemed efficient where the scope for added value is limited. 

The Trustees do not make Investments in securities that are not traded on regulated markets.  However, should the Scheme’s assets be invested in such securities, in recognition of the  associated risks (in particular liquidity and counterparty exposure), such investments would  normally only be made with the purpose of reducing the Scheme’s mismatch risk relative to its  liabilities or to facilitate efficient portfolio management. In any event, the Trustees would ensure  that the assets of the Scheme are predominantly invested on regulated markets.  

The Trustees recognise the risks inherent in holding illiquid assets. The Trustees have carefully  considered the Scheme’s liquidity requirements and time horizon when setting the investment  strategy and manages liquidity risk by ensuring illiquid asset classes represent an appropriate  proportion of the overall investment strategy.  

The Scheme is subject to currency risk because some of the investment vehicles in which the  Scheme invests are denominated or priced in a foreign currency. Within the context of the  Mercer Funds used in the Scheme’s Portfolio, to limit currency risk, a target non-sterling currency  exposure is set and the level of non-sterling exposure is managed using currency hedging  derivatives such as forwards and swaps. 

The Trustees recognise that environment, social and corporate governance concerns, including  climate change, have a financially material impact on return. Section 12 sets out how these risks  are managed. 

The role of a custodian is to ensure the safe keeping of the assets and facilitate all transactions  entered into by the appointed investment managers. The Scheme’s assets are invested through  pooled funds and the selection of custodians is undertaken by Mercer and the external property  manager for these funds on the Trustees’ behalf. 

Should there be a material change in the Scheme’s circumstances, the Trustees will advise Mercer,  who will review whether and to what extent the investment arrangements should be altered; in  particular whether the current strategy remains appropriate. 

6. Investment Strategy 

The Trustees, with advice from the Scheme’s Investment Consultant and the Scheme Actuary,  reviewed the Scheme’s CDI investment strategy in consultation with the Company during 2020.  This review considered the Trustees’ investment objectives, their ability and willingness to take risk (the risk budget) and how this risk budget should be allocated and implemented. 

Following the review, the Trustees agreed to refine the CDI strategy.  

The CDI strategy aims to: 

▪ Match a high proportion of the Scheme’s expected liability cashflows, as calculated based  on the Scheme’s Technical Provisions assumptions. 

▪ Initially generate an expected return of approximately gilts + c.1.3% p.a. (net of fees)* ▪ Initially support a discount rate of approximately gilts + 0.8% p.a.* 

* Figures as at 31/03/2020. The expected return and discount rate will be reviewed periodically as both are subject to change due to market conditions

With this in mind, the Trustees have agreed that the Scheme’s investment portfolio should be  constructed so that it provides a broad liability hedge through a range of diversified investments  managed by Mercer rather than accumulate exposure in any single part of the interest rate or  inflation curve (i.e. to avoid “curve” risk). The Trustees have delegated the responsibility for  constructing, managing and monitoring the scheme’s liability hedging arrangements and further  information on target hedge ratios for interest rate and inflation hedging is included in the SIA. 

The Trustees believe that the Scheme’s investment strategy is consistent with the investment policy, objectives and risk management decisions set out in Sections 3, 4 and 5. 

Responsibility for monitoring the Scheme’s asset allocation is delegated to Mercer. Mercer will  report quarterly to the Trustees on any breaches to the range restrictions. 

7. Investment Principles 

The Trustees have adopted the following principles subject to the overriding constraint that at the  total Scheme level the expected level of risk is consistent with that outlined in sections 3, 4, 5 and  6 and subject to the Trust Deed & Rules: 

▪ There is a role for both active and passive management. Passive management involves  employing investment managers to deliver a return equal to a chosen benchmark appropriate  to the asset class held. Active management involves employing investment managers who  aim to outperform a benchmark but with a risk that they will underperform. By employing  both, via pooled investment vehicles with Mercer and the external property manager, the  Trustees aim to take advantage of active management where they believe it is likely to lead to  outperformance net of fees, while using passive management in other areas or alongside  active management to control overall manager risk and to manage overall fee levels. 

▪ At the total Scheme level investments should be broadly diversified to ensure there is not a  concentration of exposure to any one market or issuer, to the extent that this is not protected  (e.g. by collateral). This restriction does not apply to investment in UK Government debt.  

▪ The amount invested in highly concentrated portfolios will take into account the level of risk  this represents taking into account the Scheme’s assets overall. 

▪ The amount invested in illiquid investments, such as pooled property or private debt funds,  will take into account the implications of not being able to readily liquidate a proportion of the  Scheme’s investment on the operation of the Scheme. 

▪ Investment in derivatives is permitted within pooled funds for risk reduction purposes or to  facilitate efficient portfolio management. In particular, the Trustees have agreed that they are  comfortable with the use of financial derivatives for the purpose of managing the risk of  changes in long-term interest rates and inflation expectations within pooled funds.  Investments may be made in securities that are not traded on regulated markets. 

▪ Recognising the risks (in particular liquidity and counterparty exposure), such investments will  normally only be made with the purpose of reducing risk (e.g. interest rate risk or currency  risk) or to facilitate efficient portfolio management. In any event the Trustees will ensure that  the assets of the Scheme are predominantly invested in regulated markets where possible. 

▪ The Trustees will not invest directly in the Scheme sponsor or associated companies, but  acknowledge that indirect investment is possible as a result of the investment policies of the  underlying managers utilised by Mercer.

▪ The Trustees have agreed that the use of leverage is appropriate as part of the Scheme’s  CDI solution to enable target hedge ratios (for interest rate and inflation exposure) to be  achieved and maintained. The Trustees have not set a formal target with respect to the use  of leverage but will monitor actual leverage levels over time. The Trustees will not borrow for  any other purpose, except to cover short term liquidity requirements although recognise the  underlying managers utilised by Mercer may be permitted to borrow. The Trustees review the  leverage and borrowing for the pooled funds prior to investment. 

8. Additional Assets 

Members of the Scheme have the opportunity to pay Additional Voluntary Contributions, which  are invested and used to increase pension benefits at retirement, or in the event of death. The  Trustees established the arrangements under which these contributions are invested, taking  advice from their investment advisers. 

These arrangements are reviewed from time to time to ensure that the investment performance  achieved is acceptable and the investment profile of the funds is consistent with the objectives of  the Trustees and needs of the members. Further details can be found in the SIA. 

9. Realisation of Investments 

The Trustees on behalf of the Scheme hold shares in Mercer Funds and a Limited Partnership  Interest with Patrizia. MGIE, Mercer AG, the underlying managers appointed by MGIE and  Mercer AG and Patrizia have discretion in the timing of realisation of investments and in  considerations relating to the liquidity of those investments within parameters stipulated in the  relevant appointment documentation. In practice, this means that the underlying managers  appointed by MGIE, Mercer AG and Patrizia will monitor their relevant markets and trading  environments to seek attractive selling points for their individual investments such that it is in the  best interest of achieving their stated investment objective.  

10. Cash flow and cash flow management 

Cash flows, whether positive or negative, are used to move the Scheme’s asset allocation back  towards the strategic allocation appropriate at that point in time. The Trustees have agreed with  Mercer a formal cashflow process. 

11. Rebalancing 

Rebalancing ranges have been set as part of the CDI strategy to ensure the Scheme’s assets  remain invested in a manner as intended by the Trustees and the Company. The ranges have  been designed to ensure that unnecessary transaction costs are not incurred by frequent  rebalancing. There is no automatic rebalancing between assets within the CDI solution and the  Scheme’s assets outside those managed by Mercer, but the Trustees will review the Scheme’s  overall position through regular (typically quarterly) reporting provided by Mercer. Further details  can be found in the SIA. 

12. ESG, Stewardship and Climate Change 

The Trustees believe that environmental, social and corporate governance (ESG) factors may  have a material impact on investment risk and return outcomes, and that good stewardship can  create and preserve value for companies and markets as a whole. The Trustees also recognise  that long-term sustainability issues, particularly climate change, present risks and opportunities  that increasingly may require explicit consideration.

As noted above Trustees have appointed Mercer to act as discretionary manager in respect of a  majority of the Scheme’s assets (and such assets are invested in a range of Mercer Funds  managed by MGIE) and Patrizia AG to manage the property holding. The asset managers appointed to manage the Mercer Funds and Patrizia AG are expected to evaluate ESG factors,  including climate change considerations, and exercise voting rights and stewardship obligations  attached to the investments, in accordance with their own corporate governance policies and  current best practise, including the UK Corporate Governance Code and UK Stewardship Code. 

The Trustees consider how ESG, climate change and stewardship is integrated within Mercer’s.  MGIE’s, Mercer AG’s and Patrizia’s investment processes, and those of the underlying managers used within the Mercer funds, in a regular quarterly monitoring process. Mercer is expected to  provide reporting on their funds, on a regular basis, at least annually, on ESG integration  progress, stewardship monitoring results, and climate-related metrics and/or climate scenario  analysis. The Trustees will review the extent to which ESG, climate change and stewardship is  integrated within their investment manager’s processes on a broadly annual basis. 

Member Views 

Member views are currently not taken into account in the selection, retention and realisation of  investments. However, the Trustees believe that the appointment of investment managers and delegation of portfolio construction, for the majority of the Scheme’s assets, to Mercer will lead to  ESG considerations that are in the best interests of the Scheme as a whole. 

Investment Restrictions 

The Trustees have not currently set any additional investment restrictions on the Scheme’s  investment managers. For the assets managed by Mercer, within the Mercer portfolios, the  appointed investment managers have been given restrictions in relation to particular products or  activities. 

13. Trustees’ Policies With Respect To Arrangements With, And Evaluation Of The  Performance And Remuneration Of, Asset Managers And Portfolio Turnover Costs 

When engaging Mercer as discretionary investment manager to implement the Trustees’  investment strategy outlined in section 6, the Trustees are concerned that, as appropriate and to  the extent applicable, Mercer is incentivised to align its strategy and decisions with the profile and  duration of the liabilities of the Scheme, in particular, long-term liabilities.  

As the Scheme’s assets are invested in Mercer Funds, which are multi-client collective  investment schemes and the Patrizia UK Value 2 Fund via a Limited Partnership Interest, the  Trustees accept that they do not have the ability to determine the risk profile and return targets of  specific funds but the Trustees expect Mercer and Patrizia AG to manage the assets in a manner  that is consistent with the Trustees’ overall investment strategy as outlined in section 4. The  Trustees have taken steps to satisfy themselves that Mercer and Patrizia has the appropriate knowledge and experience to do so and keeps Mercer’s and Patrizia’s performance under  ongoing review.  

Should Mercer and/or Patrizia fail to align its investment strategies and decisions with the  Trustees’ policies, it is open to the Trustees to disinvest some or all of the assets invested  managed by Mercer and/or Patrizia, to seek to renegotiate commercial terms or to terminate  Mercer’s and/or Patrizia’s appointment. 

To evaluate performance, the Trustees receive, and consider, investment performance reports  produced on a quarterly basis, which presents performance information and commentary in  respect of the Scheme’s funding level and the Mercer and Patrizia funds in which the Trustees are invested. Such reports have information covering fund performance for the previous three months, one-year, three years and since inception (as applicable). The Trustees review the  absolute performance and relative performance against a portfolio’s and underlying investment  manager’s benchmark (over the relevant time period) on a net of fees basis. 

Given the Scheme’s time horizon, the Trustees’ focus is on the medium to long-term financial and  non-financial performance of Mercer, the Mercer Funds and the Patrizia AG UK Value 2 Fund.  

Neither Mercer, MGIE or Mercer AG make investment decisions based on their assessment  about the performance of an issuer of debt or equity. Instead, assessments of the medium to  long-term financial and non-financial performance of an issuer are made by the underlying third  party asset managers appointed by MGIE and Mercer AG to manage assets within the Mercer  Funds and Patrizia AG. Those managers are in a position to engage directly with such issuers in  order to improve their performance in the medium to long term, consistent with their formal  performance objectives and how they are critically assessed and rated by Mercer. The Trustees are, however, able to consider Mercer’s and MGIE’s assessment of how each underlying third  party asset manager (including Patrizia) embeds ESG into their investment process and how the  manager’s responsible investment philosophy aligns with the Trustees’ own responsible  investment policy. This includes the asset managers’ policies on voting and engagement.  Section 12 provides further details of the steps taken, and information available, to review the  decisions made by managers, including voting history and the engagement activities of managers  to identify decisions that appear out of line with a Mercer Fund’s and the Patrizia UK Value 2  Fund’s investment objectives or the objectives/policies of the Scheme. 

The investment managers and asset managers are incentivised as they will be aware that their  continued appointment by MGIE and Mercer AG (in the case of the Mercer Funds) or the  Trustees (in the case of MGIE and Mercer AG as an investment manager and Patrizia) will be  based on their success in meeting MGIE’s, Mercer AG’s and the Trustees’ expectations  respectively. If MGIE and Mercer AG is dissatisfied then it will, where appropriate, seek to replace  the appointed manager. Similarly, if the Trustees are dissatisfied with MGIE, Mercer AG and/or Patrizia, then they will, where appropriate, seek to replace MGIE, Mercer AG and/or Patrizia. 

The Trustees are long-term investors and are not looking to change their investment  arrangements on an unduly frequent basis. However, the Trustees do keep those arrangements  under review, including the continued engagement of Mercer using, among other things, the  reporting described above.  

The Trustees monitor, and evaluate, the fees it pays for asset management services on an  ongoing basis taking into account the progress made in achieving its investment strategy  objectives as outlined in section 4. Mercer’s and MGIE’s fees are based on a percentage of the  value of the Scheme’s assets under management which covers the design and annual review of  the CDI strategy, and investment management of the assets. In addition, the underlying third  party asset managers of the Mercer Funds also charge fees based on a percentage of the value  of the assets under management. In some instances, some of the underlying managers may also  be entitled to charge fees based on their performance.  

Mercer AG fees are charged based on net commitment for the first four years following the final  close and, thereafter, by reference to the Net Asset Value of the Mercer Fund.  

MGIE reviews the fees payable to third party asset managers managing assets invested in the  Mercer Funds on a regular basis with any negotiated fee savings passed directly to the Scheme.  Mercer’s, MGIE’s, Mercer AG and the third party asset managers’, fees are outlined in a quarterly  investment strategy report prepared for the Trustees, excluding performance-related fees and  other expenses involved in the Mercer Funds not directly related with the management fee.  

Patrizia AG charge fees based on a percentage of the value of the assets under management.  

Details of all costs and expenses are included in the Mercer Fund’s Supplements, the Report &  Accounts and within the Scheme’s annualised, MiFID II compliant Personalised Cost & Charges  statement. The Scheme’s Personalised Cost & Charges statement also include details of the  transaction costs associated with investment in the Mercer Funds. It may also include details of  the transaction costs associated with the investment in the funds managed by Patrizia AG, or a  separate statement will be provided outlining these. 

The Trustees do not have an explicit targeted portfolio turnover range but rebalancing ranges  have been designed to avoid unnecessary transaction costs being incurred by unduly frequent  rebalancing. This helps to ensure that potential asset performance is not eroded by unnecessary  and frequent trading which ultimately could result in the managers underperforming their stated  performance objectives. Specifically, other than in respect of the Patrizia UK Value 2 and private  markets investments where turnover does not usually apply, performance is reviewed net of  portfolio turnover costs, with the review of portfolio turnover of the underlying investment  managers undertaken by MGIE. MGIE reviews the turnover of the investment managers used in  the Mercer Funds and the associated transaction costs incurred. The total transaction costs in the  management of the Scheme’s assets are reported to the Trustee through the annual cost and  charges statements. 

14. Compliance with this Statement 

The Trustees will aim to monitor compliance with this Statement regularly, including an  assessment of whether the Scheme’s investment arrangements (as managed by Mercer and the  investment managers) are in line with the investment principles in this Statement, so far as  reasonably practicable.  

15. Review of this Statement 

The Trustees will review this Statement at least every three years to coincide with the Actuarial  Valuation and immediately after any significant change in investment policy, in accordance with  the Occupational Pension Schemes (Investment) Regulations 2005. Any such review will be  based on written expert advice and will be in consultation with the Company. 


For and on behalf of the Trustees of the Weetabix Group Pension Scheme September 2020