Key Takeaways
- • TfL Pension Fund underperformed its bespoke benchmark in 2023-24, delivering 6.4% returns against an 11.5% benchmark gain, primarily due to private markets lagging a fourth-quarter rally in listed equities.
- • The scheme maintains a 44% allocation to alternatives (infrastructure, private equity, private credit, real estate, and hedge funds), with its hedge fund completion programme managed by Cambridge Associates growing from 2% to 4.1% of portfolio (approximately £615m).
- • Despite single-year underperformance, the fund demonstrates strong five-year outperformance, averaging 6.9% annually versus 4.8% from its benchmark, and assets grew to £15bn as of March 31, 2024, up from £14.1bn year-over-year.
- • The fund achieved a funding surplus of over £3bn at the March 31, 2024 actuarial valuation, marking substantial improvement from a previous deficit position and indicating strong pension scheme health.
- • Asset manager transitions included the wind-down of a £380m global equities mandate from Ardevora Asset Management and a purchase of an onshore wind farm asset from DIF Capital Partners, while cash holdings increased to 5.7% (approximately £855m).
Summary
The Transport for London Pension Fund experienced a challenging 2023-24 financial year, posting investment returns of 6.4% compared to its bespoke benchmark return of 11.5%, marking a significant 510-basis-point shortfall. The underperformance was primarily attributable to the scheme's substantial allocation to private markets, which lagged during a sharp fourth-quarter rally in listed equities. Multiple equity and bond managers employed by the fund also underperformed their respective benchmarks during the period, compounding the headwinds facing this £15bn institutional investor.
However, the single-year setback masks a compelling longer-term investment narrative. Over a five-year horizon, the TfL Pension Fund has substantially outperformed its benchmark, delivering 6.9% annualized returns compared to 4.8% from the benchmark—demonstrating the value of its diversified alternatives strategy. The fund maintains a 44% portfolio allocation to alternatives, encompassing infrastructure, private equity, private credit, real estate, and hedge funds. Notably, its hedge fund completion programme, overseen by Cambridge Associates, expanded from 2% to 4.1% of total portfolio value during the year, reaching approximately £615m in assets under management.
Portfolio composition changes reflected strategic repositioning during the period. The wind-down of a £380m global equities mandate from Ardevora Asset Management—driven by the asset manager's closure to external investors—resulted in elevated cash holdings rising from 1.6% to 5.7% of the portfolio, equivalent to approximately £855m. The scheme also completed the acquisition of an onshore wind farm asset from DIF Capital Partners, further diversifying its infrastructure holdings, though the transaction amount remained undisclosed.
From a pension funding perspective, the scheme demonstrated robust health, with the March 31, 2024 actuarial valuation revealing a surplus exceeding £3bn and improved funding ratios compared to prior periods. Assets expanded to just over £15bn from £14.1bn year-over-year, despite the investment underperformance, reflecting net contribution flows and valuation adjustments. This financial strength positions the TfL Pension Fund favorably relative to peers navigating current market conditions.
However, the single-year setback masks a compelling longer-term investment narrative. Over a five-year horizon, the TfL Pension Fund has substantially outperformed its benchmark, delivering 6.9% annualized returns compared to 4.8% from the benchmark—demonstrating the value of its diversified alternatives strategy. The fund maintains a 44% portfolio allocation to alternatives, encompassing infrastructure, private equity, private credit, real estate, and hedge funds. Notably, its hedge fund completion programme, overseen by Cambridge Associates, expanded from 2% to 4.1% of total portfolio value during the year, reaching approximately £615m in assets under management.
Portfolio composition changes reflected strategic repositioning during the period. The wind-down of a £380m global equities mandate from Ardevora Asset Management—driven by the asset manager's closure to external investors—resulted in elevated cash holdings rising from 1.6% to 5.7% of the portfolio, equivalent to approximately £855m. The scheme also completed the acquisition of an onshore wind farm asset from DIF Capital Partners, further diversifying its infrastructure holdings, though the transaction amount remained undisclosed.
From a pension funding perspective, the scheme demonstrated robust health, with the March 31, 2024 actuarial valuation revealing a surplus exceeding £3bn and improved funding ratios compared to prior periods. Assets expanded to just over £15bn from £14.1bn year-over-year, despite the investment underperformance, reflecting net contribution flows and valuation adjustments. This financial strength positions the TfL Pension Fund favorably relative to peers navigating current market conditions.
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