The South Yorkshire Pensions Authority (SYPA) has undertaken a £2.6bn equity risk management strategy with Schroders to protect itself from a significant decline in equity markets.

It is thought to be one of the largest of its type undertaken in the Local Government Pension Scheme space. The strategy has been co-designed by Schroders’ Portfolio Solutions team with the aim of mitigating losses for SYPA in the event of a significant decline in equity markets.

Over the last few years SYPA has seen significant increases in its portfolio and was keen to manage its funding position through to the next valuation. Schroders worked closely with SYPA and its consultant Mercer to deliver this ‘put spread collar’ approach. While maximising downside protection was the core focus, the strategy was designed to manage total cost and to maintain as much upside potential as possible for SYPA.

Schroders also designed and set up a bespoke pooled fund for the strategy, a move which has minimised SYPA’s administrative and governance requirements. Schroders head of portfolio solutions group Andrew Connell said the “scope and complexity” of the mandate emphasises the commitment of the portfolio team.

SYPA fund director George Graham said: “The rise in equity markets in recent years presents South Yorkshire, in common with many pension funds, with a new set of challenges to reduce the risk of negative market impacts while maintaining a focus on growth. This solution helps us achieve this in a cost effective and transparent way.”

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