Geerings of Ashford Limited 1978 Retirement and Death Benefit Scheme Statement of Investment Principles

This Statement of Investment Principles is the Statement that applies to the investment

arrangements supporting the Trustee’s defined benefit liabilities.

1  Introduction

Under the provisions of the Pensions Act 1995 and the Pensions Act 2004, the trustees are required to prepare a statement of principles governing investment decisions. This document contains that statement for the Geerings of Ashford Limited 1978 Retirement and Death Benefit Scheme. In preparing this document, the Trustees have consulted the Principal Employer and has sought advice from the Scheme’s Investment Consultant and the Scheme Actuary. It is the Trustee’s intention to review this document annually or sooner following any material change in the asset or liability position of the Scheme. This document has been drafted in the light of the Myners’ Principles and specifically Myners’ recommendations relating to the content of statements of investment principles. The ultimate power and responsibility for deciding investment policy lies with the Trustee. However, the Trustee consults with the Investment Consultant and Actuary on changes in investment policy. In preparing this document the Trustee has had regard to the requirements of the Acts concerning diversification and suitability of investments, and the Trustee will consider those requirements on any review of this document or any change in investment policy. 

Scheme details

The scheme operates for the exclusive purpose of providing retirement benefits and death benefits to eligible participants and beneficiaries. The Defined Benefit section provides benefits linked to salary and length of service. The scheme is a registered pension scheme under Finance Act 2004. 

Financial Services and Markets Act

In accordance with the Financial Services and Markets Act 2000, the Trustee sets general investment policy following advice from the investment consultant and delegates the responsibility for executing that investment policy to an investment management firm. The Trustee endeavours to appoint Investment Managers capable of providing the skill and expertise necessary to manage the investments of the Scheme competently. 

2  Division of responsibilities 

Trustee

The trustee has ultimate responsibility for decision-making on investment matters. The Trustee’s investment responsibilities include: - Reviewing the suitability of the investment policy following the results of each annual review - Assessing the quality of the performance and processes of the Investment Manager by means of regular reviews of the Scheme’s investment portfolio. - Ensuring the investment managers maintain security, quality and liquidity within the investment portfolio. - Strategically allocating the assets of the Scheme between the investment mandates, specifically relating to profit taking from the “risk” portfolio and adding to the “gilt” portfolio or cash reserves. - Consulting with the Principal Employer when reviewing investment policy issues. - Appointing, monitoring and dismissing professional advisers and Investment Managers. - Reviewing the content of the Statement of Investment Principles and modifying it if deemed appropriate. - Having regard to the need for diversification and suitability of investments. Decisions affecting the Scheme’s investment strategy are taken in consultation with the Principal Employer and with appropriate advice from the Scheme Actuary and Investment Manager. 

Investment Manager

Investment Manager’s responsibilities include: - Implementing changes in the asset allocation and selecting assets within each asset class to meet the ongoing objectives for the Scheme. - The Investment Manager is to change the asset allocation and asset selection within the investment portfolio as conditions change on a discretionary basis. - The Investment Manager is to report to the trustees at the quarterly trustee meetings providing updates on portfolio performance, market conditions and any changes to asset allocation or asset selection. - The investment manager is remunerated on a fee basis. The investment manager has the responsibility to ensure that the underlying investment portfolio costs represent good value. - The Investment Manager must ensure that the investment portfolio is properly diversified and that risk tolerance falls within levels pre-agreed with the trustees. - The Investment Manager also provides custody arrangements for the Scheme’s assets and it is their duty to ensure proper security of these assets. This includes: - The safekeeping of the assets of the Scheme. - Processing the settlement of transactions. - Providing the Trustee with statements of the assets and associated cashflows - Processing dividends and tax reclaims in a timely manner - Dealing with corporate actions 

Investment Consultant

The role of the Investment Consultant is carried out by the Investment Manager and is to give advice to the Trustee in the following areas: - The development of a clear investment strategy for the Scheme - The construction of an asset allocation benchmark given the liabilities of the Scheme and the risk and return objectives of the Trustee - The construction of an overall investment management mandate that meets the objectives of the Trustee. - The regular updating of the Statement of Investment Principles 

Scheme Actuary

The Scheme Actuary’s responsibilities, as they relate to investment matters, include: - Liaising with the Investment Consultant / Investment Manager on the suitability of the Scheme’s investment strategy given the financial characteristics of the Scheme - Assessing the solvency position of the Scheme and advising on the appropriate response to any shortfall - Performing the triennial valuations and advising on the appropriate contribution levels. 

The Scheme’s Investment Objectives

Investment Objectives

1.      Match the income liabilities of the scheme i.e. pay out members benefits as and when they arise.

     2.  Reduce the scheme deficit.

3.      Reduce the volatility of the deficit and therefore the balance sheet risk of the scheme to the company.

4.      Give trustees and directors a clearer understanding of the position of the scheme, its risks and value.

5.      Diversify the scheme assets across different asset classes, sectors and regions in order to limit risk.

Investment Strategy

As the scheme has both short and long term objectives, the investment manager has split the scheme assets into two parts. The Investment Manager recommends investing enough of the scheme’s assets into UK government bonds that will mature over several years to match the scheme’s short-term liabilities. Additionally, with interest rates moving from a prolonged period of near zero to more normal levels, the Trustees and Investment Consultants are in agreement that an element of hedging interest rate risk is now important. The Trustees and Consultants had felt that looking to hedge interest rate risk when rates were at 300-year lows would have been a poor allocation of capital and the scheme was better placed using its resources to meet ongoing income requirements and reduce the deficit through growing the scheme’s risk portfolio. Over the last 18 months or so, with the emergence of a period of Post-Covid inflation, interest rates have normalised and the Trustees and Consultants have been active in considering the best way to try to offset some interest rate risk. To that end Liability Driven Investment (LDI) was considered as a possible solution but was discounted for three main reasons. These were: - Complexity - Cost - Concern that in a volatile interest rate environment that there may be collateral calls before yield levels settle again (as seen after the Truss / Kwarteng mini budget in the autumn of 2022) which could prove costly with little benefit. The Trustees and Investment Consultants agreed that a better solution would be to start to build a position in the gilt portfolio that would have a similar duration to the weighted term of the scheme’s liabilities which we have been told is less than 15 years. The Investment Consultant has recommended building a position in these slightly longer duration gilts over a period of time as it is not clear how ‘sticky’ inflation will prove and therefore it is unclear how high rates will go. It is also to be noted that the ‘risk’ portfolio also has exposure to fixed interest assets with a weighted duration of around 7 years and some of that exposure is to gilts. As the scheme is in deficit it is not possible to fully hedge out interest rate risk as capital needs to remain in the balanced portfolio to look to achieve longer term growth. However, the scheme has started to build a position in gilts of c. 10 years + in duration and will continue to consider hedging this risk now we are in a more normalised interest rate environment. The Investment Manager has recommended that the rest of the scheme’s assets are invested in a bespoke growth portfolio. In good years this portfolio would generate significant excess capital growth which should be periodically be taken to replenish the low risk gilt portfolio to buy more time for the risk portfolio to grow. Key to the investment strategy is having adequate short-term liabilities matched by maturing short term gilts so that risk assets never have to be sold at a bad time. Equally a balance must be struck with taking profits in good times to replenish the risk-free liability matching portfolio. This is a strategy that must be monitored on an ongoing basis and should be a topic for discussion at the quarterly Trustee meetings. The growth portfolio is a bespoke medium risk Brooks Macdonald portfolio. This means that the equity exposure will always range between 55% to 75% and the rest of the assets will be spread across fixed interest, hedge strategies, structured return investments, commercial property and cash. The asset allocation and investment selection is dynamic and changes as value and opportunities appears in different areas. The Investment Consultant believes that there are risks on both sides. Being too risk averse i.e. heavily exposed to gilts will result in capital losses in this area if interest rates rise. At the other end of the spectrum equity exposure carries the risks in relation to market volatility and economic sensitivity. Part of the strategy of the scheme is to find the right balance between the two. The Investment Consultant recommends that sweeps of capital from the growth portfolio to the gilt portfolio should be discussed on a frequent basis and when markets have been supportive to the growth portfolio some profits are taken and allocated to the gilt portfolio. 

Investment Policy

The Trustee’s Policy is to seek to achieve the objectives by employing the investment management services of a discretionary wealth manager. Their objective is to select and manage a portfolio of assets across a variety of different asset classes to generate a return which aims to generate growth above the level of liabilities at an acceptable level of risk. The Investment Manager’s investment philosophy and approach is founded on three key principles: 1. Utilise a proven active investment process. Brooks Macdonald’s established, centralised investment process combines strategic and tactical approaches to asset allocation with vigorous individual security selection. It allows BM to leverage the broad expertise of their asset allocation and investment committees, as well as the in depth knowledge of their specialist sector research teams. It is designed to identify the best investments amid the everchanging investment environment. 2. Integrate effective risk management. Risk management is central to BM’s investment philosophy. They seek to produce strong risk-adjusted returns; this means that they do not only seek to generate profits, but simultaneously endeavour to limit the potential for losses. To accomplish this they have embedded qualitative and quantitative risk controls into their investment process, while ensuring that adequate portfolio diversification is achieved by investing in a wide range of traditional and alternative asset classes. 3. Maintain portfolio focus to enable BM to implement suitable and effective investment strategies across a wide variety of clients. This enables their individual investment managers a level of discretion in managing client portfolios to their individual mandates. This discretion is limited within defined boundaries established by their investment and asset allocation committees, thereby ensuring that the influence of their centralised investment process is maintained. As their sector research teams are comprised of investment managers, they ensure that the managers of client portfolios are at the centre of their investment process. 

Asset allocation strategy

Asset allocation is a type of investment strategy that involves the distribution of capital to various asset classes and geographies. It is based on the principle that the values of different assets react in different ways as a result of changes in economic and market conditions (i.e. some asset prices rise while others fall). Because of this principle, a portfolio’s risk profile can be altered by changing the composition of its underlying asset allocation. As such, portfolios with varying risk profiles can be designed by varying their underlying exposure to different asset classes. For example, investing in equities has historically tended to be more risky than investing in bonds; therefore, by reducing a portfolio’s overall exposure to equities and increasing its exposure to bonds you can reduce its overall risk profile (and vice versa). Given the ever-changing economic environment, asset allocation is a key component of the investment process. The asset allocation strategy is established and managed by BM’s asset allocation committee, which consists of a number of highly experienced investment professionals. In setting asset allocation strategy, the committee evaluates investment research to make short-term (tactical) and longer term (strategic) assessments of the prevailing global economic and financial conditions. The research used by the committee is both generated internally and sourced from external research providers. The committee quantifies its assessments and communicates asset allocation strategy through a number of ‘guidance portfolios’, each of which provides a framework for the construction of client portfolios with specific risk profiles. Each guidance portfolio consists of recommended allocations to various asset classes. Although guidance portfolios provide explicit asset allocations to various asset classes, the committee has also established tolerance ranges around these levels. Individual investment managers hold discretion to allocate the assets of client portfolios within these tolerance ranges. This provides each investment manager with flexibility in constructing their client’s portfolios, thereby ensuring that they can be effectively managed to their individual mandates. The common asset classes in which BM invest include equities, bonds and alternatives (hedge funds, property, etc.). 

Diversification

Diversification is the process of investing in different assets to reduce risk. Each individual asset has its own properties, which cause it to react in certain ways to changes in economic and market conditions. Assets that consistently react differently to each other are known as uncorrelated (or non-correlated) assets. By purchasing uncorrelated assets investment managers are able to diversify portfolios, thereby reducing their overall risk. A portfolio may be diversified in several ways: • Asset class diversification: a portfolio that owns different types of assets is less likely to be affected by price declines in any single asset class. • Geographic diversification: investing in assets in, or with exposure to, different parts of the world may reduce exposure to risk surrounding specific currencies, regional economic differences and geopolitical issues. • Industry diversification: some types of businesses react to economic circumstances in different ways. For example, lower oil prices will be detrimental to oil producers but may benefit oil consumers, such as airlines. 

Managing investment risk

BM consider risk management to be a key component of their investment philosophy. They have embedded a number of controls into their investment process that are designed to ensure sufficient diversification is built into portfolios. Specifically, their asset allocation strategy considers risk at the overall portfolio level, while investment managers consider it when selecting individual investments. Furthermore, their investment committee has established a number of policies that investment managers must follow. These policies assist in ensuring that portfolios reflect the objective of the client’s investment objectives and risk profile. Examples of current investment policies include: • Asset allocation limits: Portfolios must reflect the asset allocation guidance specified within the relevant guidance portfolio, within allowed tolerances. • Volatility bands: Volatility is a measure of the variation in an investment’s price over time. The volatility of an investment portfolio is reflective of the volatility of the individual investments within it. The investment committee has assigned a volatility band for each risk profile. Investment managers must ensure that portfolio volatility remains within the relevant band over specified timeframes. • Unit size restrictions: There are limitations on the proportion of a portfolio’s assets that can be invested in any single investment. These limits are partly dependent on the nature of the investment itself. • Concentration limit: As well as unit size restrictions, there are limits as to the maximum percentage of a particular security that can be held by discretionary clients in aggregate (for example, maximum ownership of an individual company’s outstanding shares). The investment committee reviews firm wide exposure to particular types of assets to ensure there is clarity on the overall holding. Once an agreed threshold is reached, investment managers can no longer purchase that asset for any discretionary client. • Illiquid investments: There are limitations on the proportion of a portfolio’s assets that can be invested in unlisted assets, or illiquid assets. An illiquid investment cannot easily be immediately sold without a substantial loss in value, especially during periods of market turmoil. 

Portfolio construction – Brooks Macdonald tolerances

Investment managers are granted a degree of discretion in constructing portfolios. This discretion takes the form of tolerance ranges around the asset allocation levels specified by our asset allocation committee, as well as responsibility for selecting the individual securities that are purchased within each asset class (normally, from investments listed on our central buy list). However, they must also abide by the investment policies established by the investment committee in regard to managing investment risk. When investment managers take on a bespoke portfolio, they have scope to phase its construction over a period of up to six months. This allows them to take market conditions at the time of construction into account, thereby reducing risk. After six months, the portfolio will be invested within the tolerance ranges of the relevant guidance portfolio – this is known as being fully invested. 

Benchmarks and portfolio reporting

Trustees will be provided valuation reports every three months. Valuation reports list your cash balances, the investments that you own, the transactions that are conducted on the scheme’s behalf during the preceding period and the costs incurred, including investment management fees. In addition to receiving valuation statements, trustees can securely view their account details online at any time. Valuation reports also state portfolio performance. To help you put this into context, the report will also include the performance of a relevant benchmark (a measure of investment performance). There are many different types of benchmarks, but some of the most commonly used are indexes that measure the performance of certain stock markets. For example, the MSCI UK Index is designed to measure the performance of the large and mid-cap segments of the UK market. 

Investment risk analysis

All investments involve a degree of risk. There are a wide variety of risks that affect how investments perform. The key risks that you should be aware of include:

Market risk

The risk of a general decline in investment markets. Numerous factors affect the overall direction of investment markets, including the state of the global economy and various political developments. A prolonged general market decline is called a ‘bear market’. Even companies that are growing and profitable may suffer declining share prices in bear markets. A prolonged period of general market rises is known as a ‘bull market’. In a bull market a company’s share price may increase even if its business is not profitable. 

Inflation risk

Inflation is a measure of changes in the price of goods and services over time. The purchasing power of your investments will decline if they do not increase in value by at least the rate of inflation. Although cash is often perceived as a risk-free investment, the purchasing power of a cash holder will decline unless they earn a return (interest) on it that at least matches the rate of inflation. 

Liquidity risk

Being able to sell your investments quickly is important to investors, both in terms of being able to take decisive action in the event of a sudden change in market circumstances and in terms of raising cash if there is a change in your circumstances. Investments that are hard to sell generally represent greater risk for two reasons; firstly, you may not be able to sell the investment immediately; secondly, a significant imbalance between buyers and sellers can cause a significant (and unfavourable) increase or decline in the price of an asset when it is traded. 

Exchange rate (currency) risk

Investments in foreign assets involve exchange rate risk. Investment returns earned from overseas assets may be affected by exchange rate movements. Even if the price of an overseas asset rises, it is possible that its investors will still suffer investment losses in domestic-currency terms as a result of exchange rate movements. Changes in exchange rates can also affect a company’s profitability, especially where a company’s costs / revenues are paid / earned in different currencies. 

Re-investment risk

Re-investment risk describes the risk that earnings or profits derived from an investor’s existing investments cannot be reinvested in investments that generate equivalent returns. This risk is of particular relevance to bond investors, as the holders of such assets usually receive interest income payments. The amount of interest that a bond pays is generally established when the bond is issued and most bonds continue to pay the same interest rate throughout their term (lifetime). As such, if interest rates fall during the term of a bond it may be difficult to re-invest the money received when the original bond matures. Re-investment risk can be reduced by purchasing investments with longer maturities. The longer the period of time that a rate of return can be guaranteed, the lesser the reinvestment risk. However, bonds with longer-dated maturities also tend to be more volatile than bonds with short-dated maturities. Where appropriate we purchase bonds that are aligned to your time horizon and mature at, or near, the time you expect to require funds from your portfolio. This is specifically done in the “Gilt” portfolio. 

Interest rate risk

The value of certain types of assets is affected by prevailing market interest rates. Traditionally, bonds have been more heavily affected by interest rate changes than other types of investments. Bond prices have an inverse relationship with interest rates. When interest rates rise, newly issued bonds pay higher interest rates than bonds issued when interest rates were lower and older bonds become less attractive to investors (who can now earn higher interest rates elsewhere); as a result, the price of the old bond is likely to fall (and vice versa). Floating rate notes are bonds that pay variable interest rates determined via reference to various market interest rates. Nonetheless, they are subject to the same dynamics as other bonds. 

Credit (default or counterparty) risk

Credit risk generally refers to the risk that the issuer of a bond (be that a firm, government or other entity) will not pay the agreed interest amounts or return the nominal amount at the bond’s maturity. If a bond issuer fails to make such a payment it is said to be in default. Upon the issuance of a bond, the issuer and bond investor are said to be ‘counterparties’. The level of credit risk that a bond issuer is assessed to represent affects the interest rate that it must pay. An issuer that is perceived to represent greater credit risk generally has to pay higher interest rates to its investors. Holders of structured notes are also exposed to credit risk associated with their issuers. 

Business risk

Business risk is the risk associated with a particular business. It encompasses all risks that affect a business’s operations and, therefore, its future cash flows and profitability. Business risk is affected by numerous factors specific to the business. Typical business risks include, but are by no means limited to, competition, technological change, the economic climate and regulation. Traditionally, business risk has most heavily affected equity investments, although it can also be relevant to other investments such as bonds. 

Taxation risk

This refers to the risk that the tax treatment of a particular investment may change. As well as increasing the amount of tax that an investor may have to pay, changes in the tax regime may make certain types of assets less attractive to own, which can cause their prices to decline. 

Security of assets

Financial Conduct Authority regulation. Brooks Macdonald are fully authorised and regulated by the FCA. You can confirm the registration by telephoning the FCA Consumer Help Line on 0800 111 6768; writing to the FCA Consumer Help Line at 12 Endeavour Square, London, E20 1JN; or via the FCA website at www.fca.org.uk. The protection of client money is of paramount importance to investor confidence. BM must comply with the FCA’s comprehensive client money rules, which ensure a clear separation between our money and money that belongs to our clients. The client money rules are designed to protect the money of a firm’s clients in the event of its insolvency. Brooks Macdonald is an IFPRU Significant firm. As an IFPRU firm, we are required to hold a mandatory capital amount and have a wind down plan in place that identifies the steps and resources that would be taken in such eventuality. BM are also required to report the capital we hold to the FCA on a quarterly basis and obligated to notify them of any shortfall immediately. More information can be found at http://www.fca.org.uk/firms/ firmtypes/intermediaries/client-money. 

How is Scheme money held?

Brooks Macdonald are not a bank or licensed deposit taker. Unlike a bank, BM are not permitted to use client money to run our business, nor are they permitted to lend client money to any other party. FCA rules require that they hold client assets entirely separately from their own assets and our clients’ assets cannot be used to satisfy their creditors in the event of the liquidation of our business. Scheme cash is pooled with cash belonging to other clients. It is held in trust in accounts with a number of large banking institutions. BM are required to obtain written confirmation from each bank that the money belongs to our clients, not to BM. BM place client money with several banks to ensure that it is not concentrated in one place. Brooks Macdonald’s overriding priority in choosing which banks to use is security of assets. Their treasury committee carefully considers which banks to place client money with, taking into account their size, reputation and credit rating. They review the banks that we use on an ongoing basis to ensure their continued suitability. 

Where do Brooks Macdonald hold the Scheme investments?

The majority of client assets are held in nominee company accounts in the name of “Brooks Macdonald Nominees Limited”. They maintain nominee company accounts with a number of different regulated financial institutions. A nominee company is a company formed specifically to hold and administer assets, as a custodian, on behalf of their owner, under a custodial arrangement. They are non-trading entities. BM’s own assets are held entirely separately to those belonging to their clients. They undertake appropriate due diligence in the selection, appointment and periodic review of the financial institutions they choose to provide custodial services through nominee companies. Clients retain beneficial ownership of assets held by nominee companies. Under certain restricted circumstances client assets can be held by third-party nominee companies, which are normally owned by third-party financial institutions. Assets may also be registered in ‘own name’ non-nominee form and we may provide appropriate safekeeping for such assets, again under certain restricted circumstances. 

Specific details surrounding the custody of assets are provided below:

• UK equities and investment trusts UK equities and investment trusts are held in electronic form in the Central Securities Depository for the UK, the Certificateless Registry for Electronic Share Transfer (CREST), or through Euroclear, a leading global financial services company. • Collective investments Most collective investment fund investments are held through Cofunds’ institutional service, in an account designated as holding client assets. Cofunds is a leading UK investment platform. Some collective investment funds are held directly with their provider in nominee company accounts. Funds that cannot be held via Cofunds are held directly through the fund provider. • Overseas assets Overseas assets are held by BNP Paribas Securities Services and AJ Bell through a local institution. BNP Paribas Securities Services is a leading global provider of securities services, AJ Bell is a leading UK investment platform. • Fixed income and structured notes Fixed income securities and structured notes issued in the UK are held in CREST. Bonds and structured notes issued outside the UK are held by AJ Bell. 

Investment Management & Consultancy Fees

The charges Brooks Macdonald apply vary according to the service(s) that they provide, as detailed in their ‘fee schedule’. The charges will be set out in the investment proposal they provided during the application process. Their investment management charges are fee based and are charged quarterly. They will be based upon the value of the assets in the scheme’s account. 

Corporate governance and Socially Responsible Investment

Although the Trustee has delegated responsibility for selection, retention and realisation of investments to the Investment Managers, within certain guidelines and restrictions the Trustee recognises its responsibilities as a shareholder and believes that good corporate governance enhances shareholder value. The Trustee has reviewed and will continue to review from time to time the policies operated by the Investment Managers in respect of corporate governance issues and in respect of social, environmental and ethical issues to the extent such policies are relevant in respect of the Investment Manager’s mandate. Having been satisfied as to the policies of each of the Investment Managers on these issues, the policy of the Trustee is that: - Corporate governance issues and the exercise of rights attaching to investments, including voting, be delegated to the Investment Managers as an integral part of the investment management function; voting rights will be exercised whenever practicable with the objective of preserving and enhancing shareholder value. - The extent to which social, environmental and ethical considerations are taken into account in investment decisions is left to the discretion of the Investment Managers subject to such social, environmental and ethical issues not having a prejudicial financial impact on the securities held. 

Monitoring the Investment Manager

The Trustee reviews the Scheme’s Investment Managers from time to time, considering the results of its monitoring of performance and process and the Investment Manager's compliance with the requirements of the Pensions Act concerning diversification and suitability. 

Selection and de-selection criteria

The Trustee has identified the criteria by which Investment Managers may be selected or deselected. These criteria include: - Past Performance - Quality of the Investment Process - Role Suitability -level of fees - reputation of the Manager - familiarity with the mandate -internal objectives and restrictions - Service - Reporting - administration -Team - the individual fund managers working for the Scheme. These criteria are not exhaustive and the Trustee retains discretion to select and deselect Investment Managers for any reason it deems appropriate. 

Myners’ Principles In 2000, the Government commissioned Paul Myners to investigate the factors which were distorting the investment decision-making of UK institutions. As a result of this review, it was recommended that UK pension funds adopt investment principles (called the Myners Principles) as best practice. These investment principles have since been amended and are detailed as follows: Principle The high level principles will be the accepted code of best practice throughout the industry in investment decision-making and governance. It is expected that trust boards will report against these on a voluntary ‘comply or explain’ basis. Best practice guidance Best practice guidance is intended to help trustees to apply the principles effectively. Trustees are not expected to implement every element of best practice. Rather trustees may use best practice examples where appropriate to help demonstrate whether compliance has been achieved. Principle 1: Effective decision-making Trustees should ensure that decisions are taken by persons or organisations with the skills, knowledge, advice and resources necessary to take them effectively and monitor their implementation. Trustees should have sufficient expertise to be able to evaluate and challenge the advice they receive, and manage conflicts of interest. Guidance: The board has appropriate skills for, and is run in a way that facilitates, effective decision-making. There are sufficient internal resources and access to external resources for trustees and Boards to make effective decisions. It is good practice to have an investment subcommittee, to provide the appropriate focus and skills on investment decision-making. There is an investment business plan and progress is regularly evaluated. Consider remuneration of trustees. Pay particular attention to managing and contracting with external advisers (including advice on strategic asset allocation, investment management and actuarial issues). Principle 2: Clear objectives Trustees should set out an overall investment objective(s) for the fund that takes account of the scheme’s liabilities, the strength of the sponsor covenant and the attitude to risk of both the trustees and the sponsor, and clearly communicate these to advisers and investment managers. Guidance: Benchmarks and objectives are in place for the funding and investment of the scheme. Fund managers have clear written mandates covering scheme expectations, which include clear time horizons for performance measurement and evaluation. Trustees consider as appropriate, given the size of fund, a range of asset classes, active or passive management styles and the impact of investment management costs when formulating objectives and mandates. Consider the strength of the sponsor covenant. Principle 3: Risk and liabilities In setting and reviewing their investment strategy, trustees should take account of the form and structure of liabilities. These include the strength of the sponsor covenant, the risk of sponsor default and longevity risk. Guidance: Trustees have a clear policy on willingness to accept underperformance due to market conditions. Trustees take into account the risks associated with their liabilities valuation and management. Trustees analyse factors affecting long-term performance and receive advice on how these impact on the scheme and its liabilities. Trustees have a legal requirement to establish and operate internal controls. Trustees consider whether the investment strategy is consistent with the scheme sponsor’s objectives and ability to pay. Principle 4: Performance assessment Trustees should arrange for the formal measurement of the performance of the investments, investment managers and advisers. Trustees should also periodically make a formal policy assessment of their own effectiveness as a decision-making body and report on this to scheme members. Guidance: There is a formal policy and process for assessing individual performance of trustees and managers. Trustees can demonstrate an effective contribution and commitment to the role (for example measured by participation at meetings). The chairman addresses the results of the performance evaluation. State how performance evaluations have been conducted. When selecting external advisers take into account relevant factors, including past performance and price. Principle 5: Responsible ownership Trustees should adopt, or ensure their investment managers adopt, the Institutional Shareholders’ Committee Statement of Principles on the responsibilities of shareholders and agents. A statement of the scheme’s policy on responsible ownership should be included in the Statement of Investment Principles. Trustees should report periodically to members on the discharge of such responsibilities. Guidance: Policies regarding responsible ownership are disclosed to scheme members in the annual report and accounts or in the Statement of Investment Principles. Trustees consider the potential for engagement to add value when formulating investment strategy and selecting investment managers. Trustees ensure that investment managers have an explicit strategy, setting out the circumstances in which they will intervene in a company. Trustees ensure that investment consultants adopt the ISC’s Statement of Practice relating to consultants. Principle 6: Transparency and reporting Trustees should act in a transparent manner, communicating with stakeholders on issues relating to their management of investment, its governance and risks, including performance against stated objectives. Trustees should provide regular communication to members in the form they consider most appropriate. Guidance: Reporting ensures that: – the scheme operates transparently and enhances accountability to scheme members; and - best practice provides a basis for the continuing improvement of governance standards