Statement of Investment Principles

Candles Provident Pension Fund

Statement of Investment Principles – September 2020


The Trustee of the Candles Provident Pension Fund (“the Fund”) has drawn up this Statement of Investment Principles (“the Statement”) to comply with the requirements of the Pensions Act 1995, the Pensions Act 2004, the Occupational Pension Schemes (Investment) Regulations 2005, and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 and 2019. The Statement is intended to affirm the investment principles that govern decisions about the Fund’s investments. In preparing this statement, the Trustee has consulted Charles Farris Limited (“the Employer”) on the Trustee’ investment principles.


The Trustee makes all major strategic decisions including, but not limited to, the Fund’s asset allocation and the appointment and termination of investment managers. The process for making investment decisions is as follows:

  • Identify appropriate investment objectives

  • Agree the level of risk consistent with meeting the objectives

  • Implement an investment strategy and investment manager structure in line with the level of risk and objectives agreed

When making such decisions, and when appropriate, the Trustee will take proper advice. The Trustee have appointed investment consultants, Capita Employee Solutions (“Capita”), who will be reviewing the investment strategy of the Fund. They are qualified by their ability in and practical experience of financial matters and have the appropriate knowledge and experience to provide such advice.

Investment Objectives

The Trustee is required to invest the Fund’s assets in the best interest of members, and their main objectives with regard to investment policy are to seek a cumulative return, after management fees, that:

  • exceeds the benchmark index over a full equity market cycle (approximately 3-5 years). The benchmark defined as the Candles benchmark index;

  • provides a real rate of return now and above UK inflation as measured by the headline RPI.

  • manages portfolio volatility to seek less volatility than competitors and the benchmark index over the long term

Accompanying this, the Trustee have regard to actuarial assumptions, liquidity and the interests of the Employer. Indeed the Trustee understands, following discussions with the Employer, that it is willing to accept a degree of volatility in its contribution requirements in order to reduce the long-term cost of the Fund’s benefits.


Risk Management and Measurement

The Trustee is aware of and pays attention to a range of risks inherent in investing the assets of the Fund. The Trustee intends that the investment strategy provides for adequate diversification both within and across different asset classes and that the current investment strategy is appropriate given the Fund’s liability profile. The Trustee’ policy on risk management is as follows:

  • The primary investment risk faced by the Fund arises as a result of a mismatch between the Fund’s assets and its liabilities. This is therefore the Trustee’s principal focus in setting investment strategy, taking into account the nature and duration of the Fund’s liabilities.

  • The Trustee recognises that whilst increasing risk increases potential returns over a long period, it also increases the risk of a shortfall in returns relative to that required to cover the Fund’s liabilities as well as producing more short-term volatility in the Fund’s funding position. The Trustee takes advice on the matter and (in light of the objectives noted previously) considers the implications of adopting different levels of risk.

  • The Trustee recognises the risks that may arise from the lack of diversification of investments. Subject to managing the risk from a mismatch of assets and liabilities, the Trustee aims to ensure the asset allocation strategy in place results in an adequately diversified portfolio. Due to the size of the Fund’s assets and recognising the need to diversify, investment exposure is obtained via pooled vehicles.

  • The documents governing the manager’s appointments include a number of guidelines which, among other things, are designed to ensure that only suitable investments are held by the Fund.

  • The Trustee recognises that, where appropriate, the use of active management involves a risk that the assets do not achieve the expected return. However, they believe this risk is outweighed by the potential gains from successful active management, in particular in regions or asset classes where this potential is greater than others. Therefore, the Fund’s assets are managed through a mixture of active and passive management which may be adjusted from time to time.

  • The safe custody of the Fund’s assets is delegated to professional custodians appointed by the manager.

Investment Guidelines

Fixed Income

  • International Bonds (defined as fixed income investments with maturities beyond one year) may be held subject to not more than 10% of the total value of the portfolio being invested in them.

  • No fixed income investment shall be made that results in an issuer concentration or 10% or greater unless the issuer is a sovereign government and the issue is backed by the full faith and credit of such government.



  • No equity investment shall be made that results in unit concentration of 5% or greater at book value.

  • In international equities the fund will seek to maintain exposure in at least five markets and may make use of unit trust and other pooled vehicles to ensure diversification.


  • Cash assets (defined as fixed income investments with maturities of less than one year) may be held for defensive purposes. Generally cash assets will be kept at a minimum and not more than 15% of the total value of the portfolio shall be invested in cash assets without the client’s prior consent.

  • Convertibles and warrants may be held, subject to their not being employed in a leveraged manner.

  • Currency hedging for defensive purposes will be permitted. Total currency hedging may not exceed 50% of the total value of the portfolio or 100% of any individual currency exposure.

  • Property and non-listed equity investments may be held as part of the portfolio that aims to exceed the benchmark index and the cycle. However, the total of these investments must not exceed 20% of the portfolio.

Should there be a material change in the Fund’s circumstances, the Trustee will review whether the current risk profile remains appropriate.

Investment Strategy

Given their investment objectives, the Trustee has adopted the asset allocation detailed in the table below, although this will be reviewed in a forthcoming investment review and will be adjusted after discussion if required. The Trustee is currently reviewing the Fund’s investment strategy. The Fund’s investments are managed accordingly by Mondrian Investment Partners (the “Investment Manager”) in their ‘Balanced Portfolio’, which can be overweight or underweight the Candles benchmark, across the range of the below asset classes. The Trustee believes that the investment risk arising from the investment strategy is consistent with the overall level of risk being targeted.

Asset Class

Candles Benchmark (%)



UK Equity




International Equity




UK Fixed




Unlisted Security and Property




International Fund













The Trustee will monitor the Fund’s actual asset allocation and, subject to stated maximum and minimum ranges, will decide on a course of action. This may involve redirecting cash flows, a switch of assets, or taking no action. The Trustee will take into account advice from the investment consultant prior to making any decision. In addition to the assets managed by the Investment Manager, the Fund has legacy private equity and loan notes holdings. It is the Trustee’s intention to sell these assets and reinvest the proceeds in line with its agreed investment strategy.

Expected Return

The Trustee expect the return on assets to be consistent with the investment objectives and investment strategy outlined above.

Investment Mandates

The assets of the Fund are invested and managed in line with the Trustee’s agreed investment strategy by the Investment Manager in their ‘Balanced Portfolio’. In addition to the assets managed by the Investment Manager, the Fund has legacy private equity and loan notes holdings. It is the Trustee’s intention to sell these assets and reinvest the proceeds in line with its agreed investment strategy.

The Trustee has a rolling contract with its Investment Manager.

The Trustee monitors the performance of its Investment Manager on a quarterly basis. This monitoring is contained in a report provided by its Investment Manager.

The Trustee has set performance objectives, including time periods, consistent with the investment strategy set out in this statement.

Investment Manager Remuneration

The Trustee monitors the remuneration and incentives, that are paid to its Investment Manager and how it rewards its key staff who manage client funds, along with how remuneration and incentives motivate employees who manage client funds.

As part of the monitoring that the Trustee carries out on a regular basis, they should ensure that this policy is in line with its investment strategy.

Investment Manager Philosophy and Engagement

The Trustee monitors the Investment Manager's process for assessing the businesses they invest in, and whether business performance over the medium to long-term involves a holistic look beyond mainly accountancy measures. The Trustee considers if the Investment Manager is incentivised to make decisions on a short-term basis or on a medium to long-term basis and whether this coincides with the business assessments being made. The Trustee is conscious of whether the Investment Manager is incentivised by the agreement with the Trustee to engage with the investee business and to what extent any engagement focuses on improving medium to long-term performance.


Investment Manager Portfolio Costs

The Trustee will monitor costs of buying, selling, lending and borrowing investments and it will look to monitor the costs breakdown annually, as long as the Investment Manager provides these costs using the Cost Transparency Initiative template. The Trustee will also ensure that, where appropriate, its Investment Manager monitors the frequency of transactions and portfolio turnover. If there are any targets then the Trustee will monitor compliance with these targets.

Financially material considerations over an appropriate time horizon

The Trustee believes that their main duty, reflected in their investment objectives, is to protect the financial interests of the Fund’s members. The Trustee believes that ESG considerations (including but not limited to climate change) and stewardship in the selection, retention and realisation of their investments is an integral part of this duty and can contribute to the generation of good investment returns. Legislation requires that the Trustee forms a view of the length of time that they consider is needed for the funding of future benefits by the investments of the Fund. The Trustee recognises that this is a closed DB scheme with an ageing membership. Nevertheless, the Trustee believes that an appropriate time horizon for the Fund could still be over 10 years, which gives plenty of scope for ESG considerations to be financially material. This will, of course, shorten if a buyout solution was sought in the short to medium term.

The Trustee recognises that it is difficult to directly influence the ESG policies, including the day-to-day application of voting rights, of the funds in which they invest (especially where assets are managed passively and/or in pooled funds). However, the Trustee will consider manager policies in all future selections and will deepen their understanding of their existing manager’s policies by reviewing these at least annually. The Trustee will also seek to understand what other options might be available at their manager and in the wider market. In cases where they are dissatisfied with a managers’ approach, they will take this into account when reviewing them. They are also keen that their managers are signatories of the UN Principles of Responsible Investment, which is currently being investigated.

The Trustee believes that stewardship is important, through the exercising of rights (including voting rights) attaching to investments. The Trustee is keen that its managers can explain when, and by what practical methods, its managers monitor and engage with relevant persons about relevant matters in this area. They will be liaising with their current manager to obtain details of voting behaviour (including the most significant votes cast on the Trustee’s behalf). The Trustee is also keen that their managers are signatories of the UK Stewardship Code. At this stage this is not known for their current manager.

The Trustee will monitor the voting being carried out by its Investment Manager and custodians on its behalf. They will do this by receiving reports from its Investment Manager which should include details of any significant votes cast and proxy services that have been used.

The Trustee is aware that ESG and stewardship considerations involve an ongoing process of education for themselves and engagement with investment managers. To that end they will dedicate time regularly to the discussion of this topic and intend to review and renew their approach periodically with the help of their investment consultants, where required.

Non-financial matters, including members’ views are not currently taken into account.


Compliance with Myners’ Principles

The Trustee believes that it complies with the spirit of the Myners’ Principles. There may be some instances of deviation from the published ‘Best Practice Guidance’ on the Principles where the Trustee believes this to be justified.

Employer-Related Investments

The Trustee’s policy is not to hold any direct employer-related investments as defined in the Pensions Act 1995, the Pensions Act 2004 and the Occupational Pension Schemes (Investment) Regulations 2005.

Fee Structures

The Investment Manager is paid an annual management fee on the basis of assets under management. The investment consultant is paid on a time-cost basis for providing ‘core services’. The Trustee can also request that the investment consultant undertakes ‘out-of-scope’ projects, which may be undertaken on a fixed fee or time-cost basis - as negotiated between the Trustee and the investment consultant.

Review of this Statement

The Trustee will review this Statement at least once every three years and without delay after any significant change in investment policy. Any change to this Statement will only be made after having obtained and considered the written advice of someone who the Trustee reasonably believes to be qualified by their ability in and practical experience of financial matters and to have the appropriate knowledge and experience of the management of pension scheme investments.



Date  30 September 2020

For and behalf of the Trustee of the Candles Provident Pension Fund