Roger Gray Uses Maximum Flexibility to Good Effect at U.K.’s USS

With big bets on infrastructure and private markets, the CIO is generating strong returns at the U.K. universities pension fund.


Roger Gray doesn’t much like the term “endowment model,” but as CIO of the Universities Superannuation Scheme (USS), he is arguably Europe’s preeminent practitioner of investing across a broad range of assets to generate returns.

Since taking charge of the £49 billion ($70 billion) fund, the U.K.’s largest defined benefit pension plan, in September 2009, Gray has expanded the scheme’s talent pool and diversified its holdings to impressive effect. A portfolio that basically invested in equities, U.K. real estate and government bonds when he arrived now has exposure to everything from listed securities to private credit, infrastructure and timberland. “We can invest in anything anywhere,” he says. “There’s quite a lot of flexibility in our program.”

Flexibility suits a polymath like Gray, who earned an MA in philosophy, politics and economics from the University of Oxford; honed his investing skills at Rothschild Asset Management and UBS Asset Management; and took a year off midcareer to play the oboe and try his hand at composing music.

These days, Gray and his team of 70 investment professionals are focusing much effort on private markets, which USS defines as real estate, private equity, alternative index-linked equity and fixed income, and private credit. The fund has a good appetite for infrastructure, but Gray dropped a dedicated infrastructure allocation last year in favor of a more granular approach that lets his team focus on investments’ fundamental characteristics to better meet the plan’s funding requirements. One by-product of this approach was USS’s purchase last year of Moto Hospitality, operator of the U.K.’s largest network of motorway service areas, from Macquarie Group for an undisclosed amount. Moto has elements of a real estate, private equity and infrastructure investment, making it a “between the cracks” deal that avoided some of the heated competition for more-mainstream infrastructure assets, Gray explains. It should return a healthy income stream for years to come.

Finding more such deals is a priority. USS generated a return of 17.9 percent in the financial year ended March 31, 2015, and an annualized 12.9 percent over the past three years, exceeding its benchmark by 1.0 and 0.8 percentage points, respectively. But Gray believes returns are likely to be much more modest over the next decade or so, citing recent research by Elroy Dimson of the University of Cambridge’s Judge Business School finding no evidence that the equity risk premium rises in periods when rates are low. With U.K. index-linked government bonds now yielding a negative 1 percent and real returns on listed equities likely to be about 3 to 4 percent a year, investors can expect perhaps 2 percent real returns on a balanced U.K. portfolio, he says. The U.S. is not much better; he considers equity valuations expensive but Treasury Inflation-Protected Securities at least offer a 1 percent real yield. Hence the attraction of private markets, which now make up 23 percent of the USS portfolio. “Our expectation is that we will continue to grow that number,” says Gray.

Return to “Europe’s Money Masters of 2016.”


2016 European Money MastersClick below to view profiles.

Investor Lifetime AchievementRoger GrayUniversities Superannuation SchemeGermanyStefan HentschelEvonik IndustriesU.K. CorporateTony BroccardoBarclays UK
Retirement FundCentral and Eastern EuropeKatrin RaheSwedbank Investment
Manager Lifetime AchievementPascal BlanquéAmundiNetherlandsMark BurbachBlue Sky GroupSmall CountriesPaul DroopBank of IrelandFranceSalwa Boussoukaya-NasrFonds de Réserve pour
les Retraites
SwitzerlandAdrian RyserMigros-PensionskasseU.K. PublicMark LyonEast Riding Pension FundScandinaviaHenrik Olejasz LarsenSampension