Agenda item

The Committee considered the Strategic Asset Allocation.

In the ensuing debate, the following principal points were raised:

·         The approach taken by the Shadow Pensions Committee three years ago in relation to the Strategic Asset Allocation had been successful in that the Actuary had not raised any issues with the Fund. It made sense to continue with the same approach albeit with a reduction of volatility risk as a result of investment in property and infrastructure. It was also clear that smart beta passive investment funds had generally outperformed market capitalised trackers over the investment period and this approach should continue and be expanded

·         In response to a query about property investments, the Chief Financial Officer commented that Bfinance had undertaken a search of potential Fund Managers. Where property investments were open for further investment, the Fund could choose to top up dependent on the performance of the market and further work by a Search Consultant that would be commissioned

·         The speed at which funds had been drawn down was more surprising. The Chief Financial Officer advised that very often market conditions determined when it was appropriate to draw down funds and that property allocations would be fully deployed within the next investment cycle.

RESOLVED that:

a)      The allocation to Infrastructure or a mix of Infrastructure and Real Estate be increased by 5% from the current strategic allocation of up to 10% of the Fund to 15%;

b)     The Chief Financial Officer be granted delegated authority in consultation with the Chairman and Vice-Chairman of the Pensions Committee to procure appropriate investment managers to secure increases to existing investments or enter into new investments;

c)      The Fund's existing investment into both Property and Infrastructure result in Capital distributions in between Strategic Asset Allocation reviews as the capital element of those investments be depreciated;

d)     A "rolling" investment programme be introduced for Property and Infrastructure investments to reinvest distributions that are received in that way in order that actual investment in this asset class is maintained at the levels up to those indicated in this Strategic Asset Allocation;

e)      The Fund's allocation to alternative indices be increased by 5%, which is conditional on recommendation 'f', from the current strategic allocation of up to 10% of the Fund to 15% equities allocation;

f)       Fund officers be authorised with the support of the Fund's current alternative indices investment Manager, Legal and General Asset Management, to also consider the appropriate balance of alternative indices to support the Fund's investment objectives. The 5% increase to alternative indices, recommendation 'e', is to be conditional on the Chair of the Pensions Committee approving the proposed balance of alternative indices;

g)     To fund the above structural asset allocation changes the asset allocation structural changes be implemented through an overall 2% reduction to each regional market capitalisation indices passive and active Equity allocation;

h)     The Strategic Asset Allocation to North American Equities be returned to Passive Management;

i)       The Fund's current global corporate Bonds strategy be maintained;

j)       Tolerance ranges as set out in Table 1 of the Appendix be implemented and maintained to allow the required portfolio flexibility;

k)      The Pension Investment Advisory Panel be tasked with overseeing further due diligence to be carried out on JP Morgan to confirm the application of their style given the slight bias to growth since 2010 indicated within this review;

l)       A review of the Fund's exposure to currency and inflation risks be carried out at appropriate intervals, given the global nature of the Fund's investments as well as the bias towards Equities;

m)    A review of regional Equity weightings and the Fund's Bonds Strategy be carried out before assets are transferred to LGPS Central Pool. Once transitioned to the Pool, a review of regional Equity weightings is recommended to form part of a more dynamic approach to asset allocation undertaken by the Pension Committee; and

n)     The Bonds Investment Strategy be reviewed before transitioning assets into LGPS Central Pool.