Investment beliefs

MAP's strategy reflects some core investment beliefs such as:

• The simplicity or complexity of the overall strategy
• The extent to which active management should be embraced within each of the major asset classes
• Within a de-risking journey plan, should triggers be automatic or manual? How much discretion should the Administration Committee keep?

Strategic Asset Allocation

Rigorous Asset modelling is a useful tool to help work out which Strategic Asset Allocation (SAA) will best meet the objectives. Aon's market-leading capabilities cover an extensive range of modelling and scenario analysis.

To examine and develop the investment strategy, thousands of portfolios with different combinations of approved asset classes were plotted using a set of statistical tools developed by the Consultant. Optimal portfolios lie on the efficient frontier. The required constraints set by the Administration Committee were then applied to eliminate portfolios that fall outside these constraints. From the remaining available portfolios the Administrative Committee identified the portfolios that maximise the expected rate of return subject to the risk objectives set.

Implementation

The Administration Committee acts prudently in implementing the Fund's investment strategies as these are chosen by the members in order to diversify timing risks and avoid dramatic moves in the Fund's asset composition.

(i) Asset Class Strategy (ACS)

The first step of the implementation process is the formulation of an ACS for each asset class which has been included in the long term SAA.

ACS is the approach taken to investing within a given broad asset class. Its main purpose is to make the risk-return trade-off as efficient as possible by refining and structuring the investment choices at a deeper level. The development of a well thought-out ACS is therefore essential because it enables the Committee to make informed and more focused decisions on how to invest within each broad asset class. The resulting ACS forms the basis for engagement with the external managers to manage assets.

(ii) Process for selecting fund managers

The Committee has adopted a process for selecting fund managers developed by the Consultant.

The approach aims to identify excellent fund managers by focusing on in-depth quality research. Quantitative and qualitative research techniques are used comprehensively within the research process. The main uses of both methods are as follows:

A qualitative analysis of the investment manager's business, focusing on criteria such as organisation and staffing, integrity of the investment process etc.

A quantitative analysis of how investment returns have been generated, given a certain level of risk within the investment process. By performing an analysis at the stock level we are able to highlight the underlying reasons for performance as well as providing a check that the manager is acting in accordance with their stated intentions.

It is important to dig under the skin of managers' and analyse what they are actually doing rather than just what they say they are doing. The following seven main categories are evaluated:

Business

Organisation & Staff

Investment Process

Risk Management

Performance Analysis

Terms & Conditions (Client Service/fees etc)

Operations

The Consultant concludes a full due diligence on a wide range of managers/strategies and presents the results to the Committee in a Search Report.

The shortlisted managers brought forward for final consideration are invited to present their strategy to the Committee before the final decision is made on which manager to appoint.

Ongoing Strategic Monitoring

The Committee has the responsibility to continuous monitor the investment arrangements of the Fund on a regular basis. The Committee understands and recognises the risks that the Fund is exposed to when investing. Monitoring of the investments is an important risk management toll, specifically in respect of the following:

• Governance risk - which relates to the processes and governance of the Fund
• Strategic risk - which relates to the way in which the Fund supports the organization's objectives
• Financial risk - which relates to the ability of Fund to manage their liquidity needs

The purpose of monitoring is to collect, assess and present investment performance information in relation to the Fund, to enable the Committee to manage related risks. The Committee has established a formal cycle of investment performance review whereby on a quarterly basis receives and reviews reports on investment performance and the implementation of the investment programme and takes necessary action where concerns have arisen.

Frequency of Strategic Investment Reviews

The Committee undertakes, as a central part of their fiduciary duty to control risk, to review the investment objective and investment strategy every three years or earlier if necessary e.g. in case there is a significant change in the Fund's characteristics (i.e. due to restructuring etc).

Environmental, Social & Governance Factors

In setting the Strategic Asset Allocations, the Administrative Committee's primary concern is to act in the best financial interests of the Fund and its beneficiaries, seeking the best return that is consistent with a prudent and appropriate level of risk. The Administrative Committee believes that ESG factors can have a positive impact on the performance of its investments, and that the management of ESG risks and exploitation of ESG opportunities can add value to its portfolio.

The Administrative Committee utilizes an investment process with ESG integration incorporating material non-financial environmental, social and governance considerations into the selection of benchmarks and asset managers.

The Administrative Committee views material ESG factors as potential risks that can and should be monitored and mitigated in the investment process, as well as possible investment opportunities for outperformance. Consideration is given to the six principles of the United Nations Principles of Responsible Investing as well the applicable regulation relating to IORP funds. ESG considerations that may be material to an investment include, among others:

Environmental factors

• Climate change
• Carbon footprint / energy use
• Biodiversity
• Deforestation
• Water issues (pollution, use, access, impact on local supply)
• Waste management
• Toxic chemical usage
• Renewable energy

Social factors

• Diversity and inclusion
• Consumer protection
• Fair trade / access
• Employee engagement
• Human rights
• Healthcare
• Working conditions (living wage, harassment, physical risks)
• Community relations

Governance factors

• Transparency
• Reporting and disclosure
• Executive compensation
• Shareholder rights
• Board accountability and makeup
• Director independence
• Accounting practices and policies
• Voting practices

The above ESG factors have been incorporated in the Global Equity and Global Bond benchmarks which apply a negative screen for investments involved in business activities that are inconsistent with certain ESG values. The Global Bond benchmark is further tilted to allocate at least 10% to Green Bonds (fixed income securities with proceeds promoting climate or environmental sustainability).

ESG factors have been integrated into the manager selection and evaluation criteria. All the underlying active equity managers having a rating that indicates the awareness of potential ESG risks in the investment strategy and the actions taken to identify, evaluate and potentially mitigate these risks.

As part of their delegated responsibilities, the Administrative Committee expects the Fund’s investment manager, where appropriate, to have integrated ESG factors as part of their investment analysis and decision making process. The Administrative Committee regularly reviews the continuing suitability of the appointed investment managers and takes advice from the Consultant with regard to any changes.