Standard Life defends investments

Keith Skeoch defended the Sterling Fund's investment strategy

The insurance company Standard Life has defended the investment strategy underlying its controversial pension Sterling Fund.

Chief investment officer Keith Skeoch rejected claims that some of the £2.1bn fund was invested in "toxic assets".

The insurer is working out how much compensation or "remediation" to give some investors who lost money when the fund's value was cut by 5% this month.

Standard Life suggested the exercise would cost it less than £10m.

"We don't currently forecast it to be significant amounts - it would be single-digits in terms of millions," the group's finance director David Nish told investors in a telephone conference call.

Not toxic

Standard Life's management of the fund, recently worth £2.4bn, has been criticised by savers and independent financial advisers.

They are all very, very good, highly-rated, triple AAA assets, that we believe will generate good value in the long term Keith Skeoch, Standard Life

They have accused the company of publishing misleading fact sheets which portrayed the fund as a very safe cash, or money market, fund suitable for pension savers.

In fact only 19% of the fund is currently held as cash in bank account deposits or similar, while 44% is invested in "asset-backed" securities, in some cases mortgages.

For the first time, the insurer's chief executive responsible for investments, Keith Skeoch, gave a public explanation and justification for the fund's investment strategy.

"There has been a lot of talk about 'toxic' assets," he told the insurer's shareholders during the conference call.

"There is no exposure to US sub-prime, CDOs or CLOs, in this fund.

"They are triple AAA and largely prime residential, with a dollop of non-conforming, but they are all very, very good, highly-rated, triple AAA assets, that we believe will generate good value in the long term," he said.

He added that all the assets in the fund were short-term, as defined by the guidance for describing such funds, which is laid down by the Association of British Insurers (ABI).

Remediation

The 97,000 investors in the Sterling Fund lost an average of £900 each from the value of their savings when the 5% cut in the overall fund value was announced on 13 January.

The company says it will "remediate" anyone who put money into the fund from 23 December until then.

That means they will be put back in the position they would have been, had they not invested, but they will be given extra units in the fund rather than being given a cash payment.

Standard Life has admitted it knew the fund's value had fallen towards the end of December, but did not reveal the fact to savers until the middle of January.