The fund’s purchase of 15-year inflation-linked swaps with Royal Bank of Scotland and Barclays Capital, raises the percentage of assets linked to inflation to 33%, from 25% six months ago.
In terms of the swap, Boots will pay a portion of the income of its fixed-income investments to the two firms and will receive inflation-linked sums in return. The swap also protects the original £200 million from falling in a deflationary environment.
The purchase, which some say is likely to pressure plan trustees to consider alternative investments, may go some way to silence critics of Boot’s controversial 100% fixed-income allocation, who argued that the strategy exposed Boots retirees to inappropriate inflation risk.
Boots grabbed headlines in October last year when it announced that all its assets would be allocated to fixed income.
According to Boots, pension plan assets increased from £2.3 billion on March 31 2001 to £2.4 billion by December 31.
Had it not sold its equity positions in 2000 and 2001, it would have a significant deficit and could not match assets and liabilities unless the retailer raised its contributions.
See our Alternative Investing Solutions topic.