Skip to main content
Visit our new site we're developing and let us know what you think
Document libraryIn this

4. DB growth assets

On this page

What you need to do

  • Understand the risks your growth assets are taking to seek return, including those in multi-asset funds.
  • Put in place appropriate methods, such as diversification and hedging, and appropriate governance arrangements to manage those risks.

Understanding growth assets

Pension schemes hold growth assets, also known as ‘return seeking investments’, because they want a positive return over time to grow the scheme assets.

Investment in growth assets involves taking risks to target the desired return. Many different types of growth asset are available to pension schemes and involve taking different types of risk to seek that return.

You need to understand how your growth assets are expected to generate return and the principal risks involved. Your investment manager(s) or investment adviser should be able to explain this to you and provide relevant training.

You may find it helpful to consider whether the return is essentially:

  • contractual (such as bond investment), where a legal agreement gives you the right to a specified level of return but you take the risk that the other party (eg the bond issuer) may default, or
  • non-contractual (such as equity investment), where you are entitled to a share in the profits from a venture, but you take the risk that these profits may not be achieved

You may wish to use a framework that considers the underlying drivers of return of the growth assets and reconcile these with your investment beliefs, if you have developed them, eg:

  • credit risks
  • equity market risks
  • real estate risks
  • insurance risks
  • interest rate risks
  • inflation risks
  • currency risks
  • liquidity risk
  • political risk
  • non-macroeconomic / behavioural factors
  • investment manager skill
  • environmental risks including climate change
  • governance and stewardship risks

A framework like this can help you understand how your growth assets may perform across a range of different economic and market environments. It can also help you critically assess proposals to invest in new or different types of growth asset.

As well as the risks from the investments themselves, you need to consider the risks arising from how those investments are accessed, particularly where pooled fund structures are used.


As described in the matching assets section, it is a legal requirement for scheme assets to be properly diversified[1]. Diversification may provide greater stability of investment returns and reduce risk.

For growth assets, you may, for example, wish to consider diversification in terms of:

  • asset classes
  • geography
  • asset managers
  • sector risks
  • underlying securities

Schemes generally seek diversification by investing across different asset classes. However, the returns from different asset classes may be driven by the same underlying risk factors. Consideration of these underlying factors should enable more effective diversification to be embedded in your scheme’s investment portfolio.

You should also consider how diversified your scheme’s assets are from the scheme’s employer. If the same factors significantly affect the employer covenant and the scheme assets, it increases the overall risk in the scheme.

Even pension schemes with well-diversified investment strategies may experience periods where diversification offers little protection. This happened in the global financial crisis of 2007/8, when many asset classes performed badly at the same time. You may therefore wish to consider other types of risk mitigation techniques, eg reducing your scheme’s exposure to significant market falls by using suitable tail risk hedging strategies.

See an example of assessing employer risk in our IRM guidance.

Footnotes for this section

  • [1] Regulation 4(7) of the Investment Regulations.


You need to have appropriate investment governance arrangements in place for your scheme’s growth assets so the risks are properly managed.

A portfolio of growth assets that is well-diversified across different risk factors can involve different managers and asset classes and may require increased governance and monitoring.

Multi-asset funds

Multi-asset funds are a popular way to access a diversified portfolio of return-seeking investments, with the aim of reducing scheme risk while maintaining scheme return. While these funds may offer benefits to schemes in terms of risk and return, they cover a wide range of investment asset classes and investment and risk management strategies. Fund performance over different times and market cycles can vary significantly between funds. You need to check the selected fund is consistent with your investment objectives.

Adopting this approach outsources the selection of assets and governance of that portfolio to the fund provider. If you’re considering investment in a multi-asset fund, you need to complete sufficient due diligence before investing to ensure you properly understand the main drivers of the expected return and how risks are managed and mitigated. Assessing historical fund performance under different market and economic conditions can help with this.

If you decide to invest in a multi-asset fund following an investment modelling exercise, you should satisfy yourself that the chosen fund fits with the modelling assumptions used, revisiting the modelling with more appropriate assumptions if necessary.

Trustee toolkit online learning

Go to the Trustee toolkit The module 'An introduction to investment' contains tutorials called 'Types of asset: Common assets', 'Types of asset: Alternative assets', and 'Capital markets and economic cycles'. The module 'Investment in a DB scheme' contains a tutorial called 'Changing the asset allocation strategy'. You must log in or sign up to use the Trustee toolkit.