Agenda item

The Committee considered the Pension Investment Update.

Philip Hebson, the Fund’s Independent Investment Advisor introduced the report and made the following points:

·         An opportunity had arisen to enable the Fund to increase its initial investment of £50m in the Gresham House Forestry Fund up to £75m. This option for additional investment was welcomed as it helped to continue the  development of  the Fund’s relationship with Gresham House and hopefully open up the possibility of further investment opportunities for the Fund in the future

·         Further work would be undertaken to understand exactly what social impact investments related were available in the market and have the ability to either make the same level of investment return or enhanced investment return required by the Fund. The findings would be reported back to Committee

·         The estimated funding level had not been as badly impacted as expected by the Russian invasion of Ukraine, albeit the markets remained volatile

·         As pensions were Consumer Prices Index (CPI) linked, there was a concern about the impact on cashflow of increases in inflation. The views of the Fund’s actuary, Mercer would be sought on this matter as part of the impending valuation.

·         In relation to equity protection, River & Mercantile, who managed the Strategy, had been acquired by Schroders. It was a concern that Schroders had a different approach to equity protection that was more aligned with making money than protecting gains. However, Schroders had indicated that clients would not see any difference to service provision following the takeover. The Fund needed to ensure that that was the case. Overall, the Equity Protection Strategy had benefited the Fund over the last quarter.

In the ensuing debate, the following points were made:

·         In relation to the impact of inflation on the cashflow position, the Chairman of the Pension Board commented that the actuary would be examining the impact of factors such as increases in pay rates including the national minimum wage and low paid public sector workers. Michael Hudson added that the anticipated cash windfall for employers as a result of the strong funding level would not now materialise. However, the funding position remained positive enough to be able to maintain a balanced position for employers

·         It was commented that the actuary should take a more positive assessment of the Fund’s discount rate in the next valuation. Philip Hebson acknowledged that this would be a matter raised with the actuary

·         In response to a query, Philip Hebson acknowledged that there was a danger that the Fund could invest in too many portfolios which would then become a challenge to monitor effectively.

RESOLVED that:

a)    The Independent Investment Adviser's fund performance summary and market background be noted (Appendices 1 and 2 to the report);

b)   The update on the investment managers placed 'on watch' by the Pension Investment Sub Committee be noted;

c)    The funding position compared to the investment performance be noted;

d)   The update on the equity protection current static be noted;

e)    The update on responsible investment activities, the Local Authorities Pension Fund Forum (LAPFF) (Appendix 3 to the report) and the stewardship of investment pooling assets be noted; and

f)     The update on the LGPS Central report on the voting undertaken on the Funds behalf be noted (Appendices 4 to 6 to the report).