The People’s Pension’s investment manager Invesco has slashed cash and government bonds in the £6bn pre-retirement part of the master trust’s default fund, instead focussing on global corporate bonds. These are short-dated as the investor is hoping spreads may widen.  

The actively managed pre-retirement portfolio will have corporate bonds at its heart, ranging from investment grade US, European and UK issues, to selective exposure to US and European high yield. The shorter duration of the bonds picked by Invesco “manages risk and gives the possibility of redeploying maturing assets into higher spread environments should that occur”, the master trust said.  

Chief investment officer Dan Mikulskis said by focusing on high-quality corporate credit, People's aims to deliver better real returns while managing risk responsibly. 

“These changes reflect both our asset ownership model which constantly evolves our investment strategy in line with market realities and member needs and the power of our partnership with Invesco,” he said. 

The portfolio, currently serving close to 1.7m members approaching retirement, has instead reduced its exposure to sovereign bonds, including gilts and treasuries, with People’s noting that “recent fiscal concerns have led to heightened volatility in term premiums, resulting in lower risk-adjusted returns from these instruments”.  

The pre-retirement fund has also had its cash holdings cut to reflect “the declining competitiveness of cash as a long-term strategic asset as interest rates fall”. The newly adopted use of segregated mandates means a cash buffer is no longer essential, the master trust noted.  

Tony Wong, senior managing cirector and co-head of investments at Invesco, said: “Invesco is delighted to have supported People’s Pension in the restructuring of its pre-retirement proposition and to play a bigger role through our active credit funds in creating positive outcomes for members at this critical stage in the retirement journey."  

The strategy design was informed by insights from member interactions in the lead-up to retirement, with development work continuing on future retirement drawdown products for older savers.  

The portfolio is aligned to People’s responsible investment policy, as well as stewardship and engagement. The increase in allocation to Invesco-managed bonds means a greater proportion of the pre-retirement fund is now covered by the scheme's climate targets, exclusions policy, ESG reporting requirements and other RI objectives.  

The equity portfolio forming part of the pre-retirement fund will still be passively managed by Amundi and for listed infrastructure by State Street.  

Earlier this year, it emerged that People’s had refreshed its asset management approach, pulling most of the assets from State Street funds and awarding segregated mandates £8bn to Invesco and £20bn Amundi, with State Street retaining about £4bn.