When UPP began assuming management for the pension assets of participating organizations in July 2021, we identified opportunities within the combined portfolio to enhance long-term performance. As a result of our findings, we developed a multi-year transition plan toward one unified and cost effective portfolio tailored to UPP’s funding objectives and investment beliefs.
In line with our target asset mix, we explore new investments with a focus on enhanced cost efficiency and control, alignment with our members’ needs, and long-term value. Since starting our portfolio transition, UPP’s Investment team has made significant progress in shifting our exposure to certain asset classes, including:
UPP’s target asset mix is specifically designed to fund our pension benefits for the long term. It will help us maintain a healthy funding and liquidity position, stay well-equipped to pay members’ pensions, and remain agile to investment opportunities as markets evolve. The pace at which UPP can shift toward our target asset mix depends on both structural and transitionary elements, including market movement, liquidity, available investment opportunities, and the duration of investment commitments within the original portfolios.
Progress on target asset mix
Inception July 1, 2021 - December 2022
UPP’s Investment team has made significant progress in shifting our exposure to certain asset classes, particularly among fixed income, public equities, and interest rate sensitive assets, as well as building and maintaining a robust liquidity position.
Return enhancing strategies generally reduce funding risk over the long term by delivering higher relative rates of return. They can, however, display higher relative volatility (a measure of market risk) in the short term.
Asset subclasses: Public equities, private equities, private debt, absolute return
Asset mix
Inception July 2021: 72%
Dec 2022: 63%
Target: 52%
Interest rate sensitive strategies generally reduce funding risk over the long term by helping offset the effects of changing interest rates to our assets and liabilities. This includes long-dated government bonds, which are a stable source of long-term returns and help align our fixed income portfolio with the interest rate sensitivity of our liabilities.
Asset subclasses: Fixed income, inflation sensitive bonds
Asset mix
Inception July 2021: 29%
Dec 2022: 40%
Target: 40%
Inflation sensitive strategies provide stable long-term returns while helping mitigate the impact of inflation on the long-term value of the Plan liabilities, which are linked to salary levels and partially indexed to changes in inflation.
Asset subclasses: Infrastructure, real estate
Asset mix
Inception July 2021: 5%
Dec 2022: 6%
Target: 9.5%
Short-term money market & funding helps us dynamically change our exposures in a fast-moving market. Proactive liquidity planning ensures we can maintain our desired asset mix and meet our liability obligations while remaining a reliable source for markets when liquidity is scarce.
Asset mix
Inception July 2021: -6%
Dec 2022: -9%
Target: 0%
Infrastructure
Inflation sensitive
Copenhagen Infrastructure Partners
Fund investment supports development and construction of renewable energy projects around the world. The commitment is part of UPP’s active strategy to further diversify its portfolio with inflation-protected assets and help build sustainable value for Plan members.
Absolute return
Return enhancing
Compass Rose Asset Management, Claren Road Credit Fund
Infrastructure
Inflation sensitive
Arjun Infrastructure Partners, Angel Trains
UPP operationalized investment benchmarks in 2023, which provide our Investment teams guidance on expected asset-level risk and return in line with our investment beliefs and strategy. As we work toward our target asset mix, seeking opportunities that support UPP’s long-term investment approach, these benchmarks will serve as a tool to maintain alignment and accountability to our objectives and to measure our team’s performance and resulting compensation.
Once we achieve our target asset mix, we will evaluate UPP’s benchmark performance on a multi-year time frame, as is typical, to avoid investment decisions based on short-term market fluctuations.
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