A verbal update will be provided in relation to the London Collective Investment Vehicle.
Minutes:
The Chair invited representatives from the London Collective Investment Vehicle (LCIV), Silvia Knott-Martin, Client Relations Manager, and Rob Hall, Deputy Chief Investment Officer, to provide an update.
Rob Hall explained that the pension fund was invested in the absolute return fund and the multi asset credit (MAC) fund. It was noted that the absolute return fund had performed well despite the volatile market but the MAC fund had not fared as well. It was explained that the MAC fund had quite a narrow portfolio and been under enhanced monitoring for over nine months; the LCIV had wanted this fund to have a wider portfolio and was now looking to appoint a second fund manager to access the full range of options, particularly given the existing market volatility and the need to adapt investments. Silvia Knott-Martin added that the LCIV was not changing the investment objective of fund and it was still aimed to achieve a return of 4-5%. The appointment of a second manager was aimed to complement the existing fund manager and to provide a more robust profile in the long term.
Steve Turner, Mercers, noted that the pension fund had appointed the fund manager, CQS, in 2014 explicitly as a MAC manager with a bias to high yield risk. It was explained that, when the LCIV had appointed CQS, it was decided to join the LCIV as it was a way to access the same manager for lower fees. It was added that there was no objection to the principle of manager diversification but that, in Haringey, the Pensions Committee and Board would need to undertake an extra layer of investigation to consider whether they were comfortable with the changes. Rob Hall acknowledged this position and noted that appointing a second manager was intended to provide a better risk return profile, accessing other parts of the credit spectrum, and react to struggling or changing markets.
The Assistant Director of Finance noted that, ultimately, the Pensions Committee and Board would need to take advice on the investments and, if the appointment of a second manager did not meet the fund’s objectives, there would be an issue. The points about multi manager funds were noted but it was enquired why the LCIV was only introducing this to the MAC fund; it was added that clearer articulation on the progression of multi manager funds would be required. Silvia Knott-Martin stated that she did not see the LCIV moving towards multi manager models for other funds in the short to medium term. In the case of the MAC fund, it was proposed to introduce a second manager to maximise investment opportunities. It was added that there would be a group discussion with investors on 11 November 2020 to address questions about strategy and for the LCIV to listen to investors.
The Head of Pensions and Treasury noted that CQS had not changed its investment approach and enquired what had happened to prompt the addition of a fund manager. Silvia Knott-Martin stated that markets evolved and, due to the current environment, there were alternative options for MAC which the current manager was not exploiting. Rob Hall added that, for the MAC fund to access the whole market, different skills and specialities were required.
Cllr Dennison noted that the decision of where to invest the pension fund took into consideration the fund managers. Silvia Knott-Martin acknowledged this and explained that the LCIV needed to offer a robust product in line with the fund objectives. Cllr Dennison stated that this would amount to a change in the fund’s strategy and removed control from the Pensions Committee and Board; it was enquired whether the LCIV would allow investors to choose which fund managers to invest in. Rob Hall commented that the fund manager should not influence decision making as the underlying manager could change. The LCIV hoped to progress to the point where the LCIV was seen as the fund manager who decided the split between fund managers based on the relevant analysis. It was added that, if the pension fund wanted to invest outside the MAC, this decision could be facilitated.
Steve Turner, Mercers, noted that the Pensions Committee and Board would have to consider the detail of the proposal for a new fund manager to ensure that it was comfortable with the strategy change and the composition of the fund. Rob Hall stated that the LCIV was not trying to change the pension fund’s strategic decision but that it was aimed to make the MAC fund more well-rounded.
Keith Brown noted that he did not object in principle to multiple managers but commented that this would change the nature of the fund that Haringey initially invested in. He stated that he would like to look at the data of prospective managers. Concern was expressed that the allocation between the multiple managers would be determined by the LCIV as it was the responsibility of the Pension Committee and Board, not the LCIV, to set the pension fund’s allocation and strategy.
The Chair commented that this discussion had raised a number of important points and that any final decision would rest with the Pensions Committee and Board.
The Pensions Committee and Board noted the update from the LCIV.