Agenda item

This report provides updates on the following matters in respect of the three months to 30 September 2020:

·         Investment asset allocation;

·         Independent Advisor’s Market Commentary;

·         Update on the Fund’s accounts and annual report;

·         Funding position update;

·         Investment Performance;

·         London Collective Investment Vehicle (LCIV) Update; and

·         Stewardship Update.

The Head of Pensions and Treasury introduced the report which provided an update on the Pension Fund and investments. It was noted that the annual accounts were due to be signed off on 30 November 2020 but that the National Audit Office had directed that both the audit opinion for the Council and Pension Fund accounts should be issued together. As the audit of the Council’s accounts was due to be completed in January 2021, it was anticipated that the audit opinion for the Pension Fund would be issued in January 2021.

In relation to the portfolio allocation, it was reported that there were a few asset classes which were slightly different to the benchmark. It was noted that renewable energy was slightly under the allocation but that this would be rectified once the recently approved investments were made with the new London CIV renewable energy strategy. It was stated that pension fund’s investment performance was 2.24% which was slightly under the benchmark of 2.34%. It was added that the fund compared well in relation to the year to date and in the long term.

It was reported that the London Collective Investment Vehicle (CIV) had made some key appointments, including the Head of Private Markets, who would be leading on the London Fund and private equity, and a Responsible Investment Manager. It was noted that a report on the London Fund, which had recently launched, was due to be presented to the Pensions Committee and Board in March. The Head of Pensions and Treasury reported that three London CIV sub fund managers remained under enhanced monitoring, one of which was CQS which had been in this position for over 10 months. The London CIV still planned to appoint a second multi asset credit (MAC) manager to complement CQS but had confirmed that the Haringey Pension Fund would not be required to divide its investments equally between the two MAC managers unless it wished to do so, as a separate sub-fund would retain 100% in CQS. It was confirmed that, once the London CIV proposals were finalised, due diligence work would be undertaken and a decision would be made about whether to remain invested in CQS or to accept the proposed additional manager.

The Head of Pensions and Treasury noted that the Pensions Committee and Board had raised concerns that one of the fund’s investment managers had not signed up to the United Nations Principles of Responsible Investment (UNPRI). It was explained that this manager had now signed up and this would be effective from February 2021. It was enquired whether the investment manager, being a smaller manager, was able to secure smaller fees in signing up to the UNPRI; the Head of Pensions and Treasury agreed to confirm.

An update was provided in relation to companies that were operating in Occupied Palestinian Territories/ Israeli Settlements. It was noted that the Pensions Committee and Board had agreed that the Local Authority Pension Fund Forum (LAPFF), as Environmental, Social, and Governance (ESG) engagement lead for the Fund, would lead on engagement work with the relevant companies. It was explained that, if progress was not made with these companies, the LAPFF was willing to consider escalation strategies such as voting recommendations at Annual General Meetings (AGMs). It was added that more detail on the LAPFF initial findings was included in the exempt report for members of the Pensions Committee and Board.

It was noted that the Pensions Committee and Board had recently agreed to implement the RAFI Multi Factor Climate Transition strategy to reduce the carbon intensity of the fund. Alex Goddard, Mercer, explained that the fund would be switching 100% of its current holdings in the RAFI Multi Factor Fund to a version of the same strategy which had initial carbon emissions reductions as well as a 7% reduction annually over time in order to be aligned with the Paris Agreement. It was noted that, in terms of the total equity portfolio, it would be possible to reduce the carbon footprint by 50% by implementing this switch. It was commented that this fund was not currently set up within Legal and General Investment Management (LGIM) and, therefore, some time was required to implement the switch. It was confirmed that LGIM was on track to launch this fund in line with the previous timetable and it was anticipated that this would be completed in May 2021. It was added that LGIM would be setting up two funds, one with currency hedging and one without, to replicate the existing arrangement where 50% was invested in currency hedged funds and 50% was invested in unhedged funds.

Steve Turner, Mercer, provided an update in relation to Ruffer; it was explained that they were an unconstrainted multi asset absolute return manager which meant that they had significant flexibility to invest. It was noted that their primary objective was to protect capital and their performance over the last year had been good with a 14% return. It was reported that they had made a noteworthy addition to their fund in November 2020 through a small allocation to bitcoin; this had comprised 2.5% of the portfolio and it had been very profitable, with a doubling of the investment in six to eight weeks. It was highlighted that, at this stage, Ruffer had taken some profits and rebalanced to the original position. It was commented that Ruffer had been one of the first institutional managers to invest in bitcoin but that Mercer did not have any concerns as this was part of their potential remit and the decision had been made following thorough research.

The Chair expressed some concerns about bitcoin following a warning from the regulator that there were a number of uncertainties and that there was a significant potential for error. Steve Turner, Mercer, noted that Mercer was aware of the comments made by the Financial Conduct Authority in relation to bitcoin. It was stated that this caution was most likely aimed at retail investors and the warning that it was possible to lose all of the money from an investment applied equally to equities. It was highlighted that Ruffer fully understood these points and had acted cautiously in investing a small amount and in rebalancing their position after several weeks. The Chair asked that issues relevant to bitcoin were monitored closely. Steve Turner, Mercer, noted that there was regular contact with Ruffer and it would be possible for them to cease investments in bitcoin relatively quickly. The Chair also noted that the Pensions Committee and Board was due to receive a report on gilts and it was asked that this included information about green government bonds.

RESOLVED

To note the information provided in respect of the activity in the three months to 30 September 2020.