Agenda item

This report provides updates on the following for the quarter ended 30 September 2021:

·         Independent advisor’s market commentary

·         Investment asset allocation

·         Investment performance

·         Funding position update

·         London Collective Investment Vehicle (LCIV) update

The Head of Pensions and Treasury introduced the report which provided an update on the Pension Fund’s performance for the quarter. It was noted that, in the quarter, the market value of the Pension Fund’s investment assets was £1.7 billion which represented an increase of 1.64% compared to the previous quarter.

It was noted that, at the last meeting, the Pensions Committee and Board had drawn attention to the overweight position in equities and had asked officers to consider options for rebalancing the allocation. It was explained that this exercise had been undertaken, after consultation with Mercer, and that £40 million of equity investments had been transitioned into the London Collective Investment Vehicle (LCIV) Absolute Return Fund (Ruffer). In addition, as part of the rebalancing, it was recommended that up to 1.5% of assets be held in cash and would be earmarked for illiquid investments such as the LCIV Renewable Infrastructure Fund and London Fund. It was added that the Pension Fund was recommended to review options for topping up the underweight position in relation to the property allocation.

Alex Goddard, Mercer, noted that the rebalancing was a prudent risk management decision. It was explained that equity assets had experienced strong returns which had driven the strong improvement in funding to over 100% as at 30 June 2021 but, as the allocation was now overweight, this also introduced some risks. It was noted that, although there would be an actuarial valuation exercise as at 31 March 2022, the proposed actions were intended to rebalance the Pension Fund’s portfolio to its strategic asset allocation. It was explained that Ruffer had experienced strong returns over the last year and had a track record in protecting when there was volatility in markets; this would provide a safer position for the Pension Fund than being overweight to equities if there was a significant market event. In response to a question about the ability of the Pension Fund to react to market events, it was noted that the rebalancing activity was a prudent measure and that any more ‘tactical’ changes would introduce additional governance challenges.

Steve Turner, Mercer, noted that consideration had been given to advising a top up to the LCIV Multi Asset Credit (MAC) Fund but that this had not been recommended as a new manager was due to be introduced shortly and, therefore, a top up in advance of this would have incurred two sets of transition costs. It was commented that, if the Pension Fund was still overweight in Quarter 1 of 2022-23, this option could be reconsidered after the new MAC manager was introduced.

In response to a question about whether it was possible to rebalance the Pension Fund to other areas of the world, it was noted that there was an existing allocation to developing and emerging markets but that it would be challenging to implement a regional approach without fundamental changes to the Pension Fund’s investment strategy. It was noted that the Pension Fund was currently 100% invested in low carbon strategies which would be difficult to replicate using a regional approach. It was added that this would also involve a change from a passive global approach to active management.

Steve Turner, Mercer, informed the Pensions Committee and Board that the Pension Fund was currently underweight in its property allocation. It was suggested that there were some options to increase this towards the target allocation as part of the rebalancing work. This included options to increase the allocation to Aviva, to discuss options with CBRE who identified suitable funds, and to consider allocating to a new type of property.

Randy Plowright, employee member, asked about the availability of training for those approaching retirement and about decision-making for flexible retirement. In relation to training, the Head of Pensions and Treasury explained that the Pensions Administration Team provided training for those approaching retirement and was looking to provide this for the wider membership as well. In relation to flexible retirement, the Interim Pensions Manager explained that the option of flexible retirement was at the discretion of an employer. It was noted that the Interim Pensions Manager was willing to discuss any individual cases outside of the meeting.

The Independent Advisor noted that the quarterly market background report was included in the agenda pack and that he was happy to answer questions. In response to a query, the Independent Advisor confirmed that the European Central Bank (ECB) had published a new Monetary Policy Strategy Statement in July 2021 and that this had not been revised since 2003.

The Head of Pensions and Treasury summarised that the Pensions Committee and Board were asked to note the information provided in respect of the activity for the quarter, including the request for officers to take forward a review of the Pension Fund’s property allocation and to bring an update to a future meeting.

Following consideration of the exempt information, it was

RESOLVED

To note the information provided in respect of the activity for the quarter ended 30 September 2021.