Key Performance Indicators

Summary of KPIs

There are three published KPIs which show annual performance, alongside the prior 2 years and a cumulative 3 year view. The latest published KPIs can be viewed in our Annual Reports.

KPI 1 – Total Fund Return

This covers the total return of the fund, for both the National Loans Fund (‘NatLF’) and the Mixed Assets Portfolio (‘MAP’) and is net of tax. The significant weighting of the NatLF when compared to the MAP (see Our investments) means that interest rate performance is currently the dominant driver of Total Fund Return. This will continue to be the case for the short to medium term until the value of the NatLF (which is being used to fund liabilities currently) falls towards that of the MAP (which is growing).

The Total Fund Return target is based over the life of the fund – well into the next century. This means that there will be a period of time when the fund is not anticipated to meet the target. This is expected, and conversely there will be an extended period of time where the fund is anticipated to exceed the current target. If anticipated returns are averaged over the lifetime of the fund they should be equal to the quoted Total Fund Return target.

The Total Fund Return target is recalculated annually. We expect this target to increase each year as the weighting of the NatLF reduces and the MAP weighting increases. When the NatLF is eventually extinguished, the Total Fund Return target will be the same as the MAP Return target (less tax). See KPI 2 below.

This KPI is net of tax as the NLF is subject to corporation tax on its taxable profits.

KPI 2 - MAP Return

Given the impact of interest rates on KPI 1 it could be considered that KPI 2 is the most important KPI for NLF. Achieving the MAP return target is key to the pursuit of NLF’s purpose of ensuring sufficient funding to discharge decommissioning liabilities.

The MAP return is quoted gross of tax, as this allows a better comparison of underlying investment returns without considering the tax impact.

The NLF has a very long timescale to achieve returns, well into the next century. As a result, we have considered the probability of meeting KPI 2 over the long term. More detail on this is provided below.

KPI 3 (a) – MAP liquid portfolio performance

This is a subset of KPI 2 and monitors the performance of the liquid part of the MAP portfolio. The liquid portfolio performance is compared to a comparable public market index, weighted to reflect the liquid portfolio holdings.

KPI 3 (b) – MAP Illiquid portfolio performance

This is also a subset of KPI 2 and monitors the performance of the illiquid part of the MAP portfolio. Due to the difficulties in sourcing a suitable public market index for the illiquid portfolio, the illiquid portfolio performance is compared to our investment adviser’s capital market assumptions for each of the asset classes included in the illiquid portfolio.