Agenda item

This report presents an overview of some of the fund’s private market asset class investments: property and private equity, and highlights where the fund is unable to achieve the targets set out in the fund’s Investment Strategy Statement through existing committed funds.  The report goes on to consider potential options to remedy this.

The Head of Pensions, Thomas Skeen, introduced this report, which gave an overview of some of the Fund’s private market asset class investments – property and private equity – and highlighted where the Fund is unable to achieve the targets set out in the Fund’s Investment Strategy Statement through existing committed funds. The report went on to consider potential options to remedy this.

The Committee were directed to sections 4.2 and 4.3 of the report, and it was highlighted that when the Fund made new commitments to investment, the rate at which the Fund would grow in the future it could not be anticipated. Looking at the Aviva commitment, when 5% was allocated to this back in 2016, the Fund was worth approximately £1bn. The Fund had since grown significantly, and the Aviva commitment equalled roughly 3.5% at the time of this report. This divergence had occurred in a number of the Fund’s private market asset classes. Due to the Fund’s overall strategic allocation being down 3.5% due to the Fund’s growth, two options were suggested to bring this back up to the agreed level. Firstly, the Committee and Board could choose to commit to invest further funds with existing fund managers to bring these amounts in line with the strategic allocation, or secondly, it could explore the possibility of further diversifying its private market portfolio by including a new mandate within the portfolio.

Property was highlighted as being a useful asset class. The Fund’s Investment Consultant, Mercer, had advised that residential property often displays a strong inflation linkage, and that this could sit well within the Fund’s overall property allocation. The Committee were informed that the suggested approach would be to consult London CIV to initiate discussions.

With regard to Private Equity, it was noted that this was a growth asset class that allowed the Fund to gain exposure to companies that were not available to invest in via public stock exchanges. Recommendation 4 was brought to the Committee’s attention for noting as the existing allocation to Private Equity was going to be underweight on its strategic allocation.

With regard to the options for the Fund, diversification would be positive in terms of mitigating risk exposure. However, increasing the number of fund managers would create a disproportionate drain on resources.  It was noted that nine fund managers was close to the average of existing funds of a similar size to Haringey. It was considered appropriate to work with other London boroughs, and consult London CIV about further investing by that route rather than by acquiring a new fund manager. The Independent Advisor to the Committee concurred with this positon.

Following discussion amongst the committee, it was noted that:

·         The Chair was due to discuss with fellow Pension Committee Chairs about further investing in residential property at a meeting in October 2018.

·         Property (Private Rented Sector) was not social housing.

·         Further investment in the London CIV did not entail adding a new fund manager, as the CIV is essentially an existing fund manager.

·         Pantheon offered a range of fund options that could be committed to relatively quickly. This was in contrast to the fact that it could take some months to discuss further investment with the London CIV.

·         Initiating discussions on residential property would be the first time the Fund had sought a bespoke arrangement with London CIV, the CIV being a relatively new organisation.

·         As a client of the London CIV, it would be up to the Fund to indicate what kind of potential investment vehicle they wanted the London CIV to offer. The London CIV would then look at London as a whole and decide if it was worthwhile to do the research behind the proposed investments. Help with investing in residential property could be sought from the London CIV, but they might reply that there was insufficient demand across London for this. If so, it would be up to the committee to decide what the next step would be.

Resolved

1. That the Committee and Board consider and note the contents of this report, including the verbal information and advice given by the fund’s investment consultant Mercer, in the meeting.

In relation to Property:

2. That the Committee and Board agrees to invite representatives of the London Collective Investment Vehicle (CIV) to the November Pensions Committee and Board meeting in order to discuss in further detail the potential for the CIV to include a residential property investment option.

3. That the Committee and Board notes and agrees to adopt two broad  principles outlined throughout this report in relation to residential property investment, namely:

·         In the first instance, any new investment should be done via the London CIV

·         Any new investment should be done in a diversified manner: preferably using a pooled investment vehicle approach, with an experienced specialist fund manager, and with exposure to the UK property market as a whole.

In relation to Private Equity:

4. That the Committee and Board note that the existing allocation is underweight and that the S151 Officer take action to correct this as detailed within this report.