Givaudan : Quest UK Pension Scheme Statement of Investment Principles

Quest UK Pension Scheme ("the Scheme")

Statement of Investment Principles for the Scheme ("the Statement")

Scope of Statement

This Statement has been prepared in accordance with section 35 of the Pensions Act 1995 (as amended by the Pensions Act 2004, and the Occupational Pension Schemes (Investment) Regulations 2005).

The effective date of this Statement is 19 June 2023. The Trustees will review this Statement and the Scheme's investment strategy no later than three years after the effective date of this Statement and without delay after any significant change in investment policy.

Consultations Made

The Trustees have consulted with the principal employer, Givaudan UK Limited ("the Employer"), prior to writing this Statement and will take the Employer's comments into account when they believe it is appropriate to do so. This Statement includes changes made to the investment strategy that were initially presented by the principal employer and have now been agreed by the Trustees.

The Trustees are responsible for the investment strategy of the Quest UK Pension Scheme. They have obtained written advice on the investment strategy appropriate for the Scheme and on the preparation of this Statement. This advice was provided by Aon Investment Limited who are authorised and regulated by the Financial Conduct Authority.

The day-to-day management of the Scheme's assets has been delegated to Aon Investment Limited who are authorised and regulated by the Financial Conduct Authority. A copy of this Statement has been provided to the appointed investment manager and is available to the members of the Scheme.

The Trustees have decided to invest the Scheme's assets in Aon's Delegated Consulting Solution ("DCS"). Aon Investment Limited ("AIL") manage the Scheme's assets in a range of funds which can include multi-asset,multi-manager and specialist third party liability matching funds. DCS in conjunction with the managers of these underlying funds conduct the necessary day to day management of the Scheme's assets required to meet the Scheme's objectives.

Objectives and Policy for Securing Objectives

The Trustees' primary objectives are:

• "funding objective" - to ensure that the Scheme is fully funded using assumptions that contain a margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial covenant of the Employer;
• "stability objective" - to have due regard to the likely level and volatility of required contributions when setting the Scheme's investment strategy; and
• "security objective" - to ensure that the solvency position of the Scheme is expected to improve. The Trustees will take into account the strength of Employer's covenant when determining the expected improvement in the solvency position of the Scheme.

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Choosing Investments

The types of investments held and the balance between them is deemed appropriate given the liability profile of the Scheme, its cashflow requirements, the funding level of the Scheme and the Trustees' objectives.

The assets of the Scheme are invested in the best interests of the members and beneficiaries.

The Trustees exercise their powers of investment (or delegation where these powers have been delegated to an investment manager) in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In order to avoid an undue concentration of risk a spread of assets is held. This diversification is both within and across the major asset classes.

Assets held to cover the Scheme's technical provisions (the liabilities of the Scheme) are invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the Scheme.

The assets of the Scheme are invested predominantly on regulated markets (with investments not on regulated markets being kept to a prudent level) and properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings so as to avoid accumulations of risk in the portfolio as a whole.

Investment in derivatives is only made in so far as derivatives contribute to the reduction of investment risks or facilitate efficient portfolio management and are managed so as to avoid excessive risk exposure to a single counterparty or other derivative operations.

The Balance Between Different Kinds of Investments

The Trustees recognise that the key source of financial risk (in relation to meeting their objectives) arises from asset allocation. They therefore retain responsibility for setting asset allocation and take expert advice as required from their professional advisers.

The Trustees will review their investment strategy following each formal actuarial valuation of the Scheme (or more frequently should the circumstances of the Scheme change in a material way). The Trustees take written advice from their professional advisers regarding an appropriate investment strategy for the Scheme.

The investment objectives set out in the Appendix to this Statement were implemented after considering written advice from the Trustees' advisers.

A broad range of available asset classes has been considered. This includes consideration of so called "alternative" asset classes (namely private equity, and hedge funds). The assets are invested in pooled funds which offer diversified exposure to a wide range of alternative asset classes.

Under DCS, the Trustees delegate responsibility for managing their asset allocation to Aon Investment Limited. This allows the asset allocation of the Scheme to be adjusted quickly, where needed, to best meet the investment objectives of the Scheme.

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Investment Risk Measurement and Management

The key investment risks are recognised as arising from asset allocation. These are assessed triennially in conjunction with the actuarial valuation of the Scheme, following which the Trustees take advice on the continued appropriateness of the existing investment strategy.

Risks associated with changes in the Employer covenant are assessed by monitoring the Failure Score (as defined for the purposes of calculating the risk-based element of the Pension Protection Fund levy). The Trustees also have an agreement with the Employer to receive notification of any events which have the potential to alter the creditworthiness of the sponsoring employers. In particular, the Trustees will be informed of Type A events, as defined in appropriate guidance issued by the Pensions Regulator and employer-related Notifiable Events. On receipt of such notification, the Trustees will re-consider the continued appropriateness of the Scheme's existing investment strategy.

The Trustees monitor performance and risk on a quarterly basis via investment monitoring reports prepared by the investment manager and guidance from their professional advisors. The Trustees have appointed Aon to alert them on any matters of material significance that might affect the ability of the investment manager to achieve their objectives.

The Trustees acknowledge that investment returns achieved outside the expected deviation (positive or negative) maybe an indication that an investment manager is taking a higher level of risk than indicated. For due diligence purposes the Trustees meet regularly with their investment manager.

Custody

Investment in pooled funds gives the Trustees a right to the cash value of the units rather than to the underlying assets. The investment manager is responsible for the appointment and monitoring of the custodian(s). The custodian(s) are independent of the Employer.

Expected Returns on Assets

Over the long-term the Trustees' expectations are:

• for the "growth" assets (UK and overseas equities, property), to achieve a return which at least keeps pace with the increase in national average earnings over the same period. The Trustees are willing to incur short-term volatility in asset price behaviour with the expectation that over the long term these assets will outperform asset classes which may be regarded as matching the liabilities;
• for the "matching" assets to be invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the Scheme;
• the median 10 year nominal return assumptions for the following asset classes as at 31 March 2023 were: 6.9% pa UK equities, 4.6% pa 10-year UK investment grade corporate bonds, 2.9% pa 15-year UK index-linked gilts and 2.2% pa price inflation (CPI).

Returns achieved by the investment manager are assessed against performance benchmarks set by the Trustees in consultation with their advisers and investment manager.

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Realisation of Investments/Liquidity

The Trustees recognise that there is a risk in holding assets that cannot be easily realised should the need arise. All of the assets held are realisable at short notice through the sale of units in pooled funds.

Arrangements with Asset Managers

The Trustees have appointed AIL as their fiduciary manager, who they consider to be their asset manager. References in this policy to 'underlying asset managers' refers to those asset managers which AIL in turn appoints to manage investments on behalf of the Trustees.

The Trustees recognise that the arrangements with AIL, and the underlying asset managers, are important to ensure that interests are aligned. The Trustees seek to ensure that AIL is incentivised to operate in a manner that generates the best long-term results for the Scheme and its beneficiaries.

The Trustees receive quarterly reports and verbal updates from AIL on various items including the investment strategy, performance, and longer-term positioning of the portfolio. The Trustees focus on longer-term performance when considering the ongoing suitability of the investment strategy in relation to their objectives and assess AIL over 3-year periods.

The Trustees receive stewardship reports each calendar year on the monitoring and engagement activities carried out by AIL, which supports the Trustees in determining the extent to which the Scheme's engagement policy has been followed.

The Trustees share the policies, as set out in this SIP, with the fiduciary manager and ask the fiduciary manager to review and confirm whether their approach is in alignment with the Trustees' policies.

The Trustees delegate the ongoing monitoring of underlying asset managers to AIL, who are responsible for monitoring the Scheme's investments and considering the extent to which the investment strategy and decisions of the underlying asset managers are aligned with the investment objectives of the Scheme.

This includes monitoring the extent to which the underlying asset managers:

• make decisions based on assessments about medium- to long-term financial and non- financial performance of an issuer of debt or equity; and
• engage with issuers of debt or equity in order to improve their performance in the medium- to long-term.

Before appointment of a new fiduciary manager, the Trustees will review the governing documentation associated with the investment and will consider the extent to which this aligns with the Trustees' policies. Where possible, the Trustees will seek to amend that documentation or express their expectations (such as through side letters, in writing, or verbally at trustee meetings) to improve alignment.

The Trustees believe that having appropriate governing documentation, setting out clear expectations to AIL and carrying out regular monitoring of the performance of the investment strategy will be sufficient to incentivise AIL to make decisions that align with the Trustees' policies and which will be based on assessments of medium and long-term financial and non-financial performance.

Where AIL is considered to make decisions that are not in line with the Trustees' policies, expectations, or the other considerations set out above, the Trustees will typically engage with the fiduciary manager to understand the circumstances and materiality of the decisions made.

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There is typically no set duration for arrangements with the fiduciary manager, although the continued appointment will be reviewed periodically. Similarly, there are no set durations for arrangements with the underlying asset managers that the fiduciary manager invests in, although this is regularly reviewed as part of the manager research and portfolio management processes in place.

Costs and Performance

The Trustees are aware of the importance of monitoring their asset managers' total costs and the impact these costs can have on the overall value of the Scheme's assets. The Trustees recognise that in addition to annual management charges, there are other costs incurred by asset managers that can increase the overall cost incurred by their investments.

The Trustees receive annual cost transparency reports from their fiduciary manager. These reports present information in line with prevailing regulatory requirements for fiduciary managers. They clearly set out on an itemised basis:

• The total amount of investment costs incurred by the Scheme;
• The fees paid to the fiduciary manager;
• The fees paid to the investment managers appointed by the fiduciary manager;
• The amount of portfolio turnover costs (transaction costs) incurred by the investment managers appointed by the fiduciary manager;
• • The Trustees define portfolio turnover costs as the costs incurred in buying and selling underlying securities held within the funds of the investment managers appointed by the fiduciary manager;
• Any charges incurred through the use of pooled funds (custody, administration, and audit fees)
• The impact of costs on the investment return achieved by the Scheme.

The Trustees acknowledge that portfolio turnover costs are a necessary cost in order to generate investment returns and that the level of these costs varies across asset classes and managers. The fiduciary manager monitors the level of portfolio turnover (defined broadly as the amount of purchases plus sales) of all the investment managers appointed on behalf of the Trustees.

The Trustees benefit from the economies of scale provided by the fiduciary manager in two key cost areas:

• The ability of the fiduciary manager to negotiate reduced annual management charges with the appointed investment managers;
• The ability of the fiduciary manager to monitor ongoing investment costs (including additional fund expenses and portfolio turnover) incurred by the investment managers and achieve efficiencies where possible;

The Trustees assess the net performance of their fiduciary manager on a rolling three-year basis against the Scheme's specific liability benchmark and investment objective. The remuneration paid to the fiduciary manager and fees incurred by third parties appointed by the fiduciary manager are provided annually by the fiduciary manager to the Trustees. This cost information is set out alongside the performance of the fiduciary manager to provide context. The Trustees monitor these costs and performance trends over time.

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