Agenda and minutes

To agree the procedures for the operation of hybrid meetings.

RESOLVED –

THAT the Council’s procedure rules for hybrid meetings be agreed.

Apologies for absence were received from Councillors Anna Burrage and Gio Spinella

Apologies for lateness were received from Councillors Heather Johnson and Jenny Mulholland.

To elect a Vice-Chair of the Pension Committee for the 2022-2023 Municipal Year.

RESOLVED –

THAT Councillor Heather Johnson be elected as Vice-Chair of the Pension Committee for the 2022-2023 Municipal Year.

To note the Terms of Reference of the Pension Committee

The Chair, Councillor Madlani, said that the Council’s Constitution had been updated to reflect its commitment to Environment, Social and Governance (ESG) issues and that all Pension Committee reports now included a section on ESG issues. He suggested that, given this, the Terms of Reference of the Pension Committee should also be updated to reflect this commitment to ESG issues. It was agreed that the Terms of Reference should be amended in the normal course of action rather than sending a separate reference to Council.

ACTION BY: Executive Director Corporate Services

RESOLVED –

(i)        THAT the Terms of Reference of the Pension Committee be noted; and

(ii)       THAT the Terms of Reference be amended to reflect the Pension Committee’s commitment to Environment, Social and Governance (ESG) issues

ACTION BY: Executive Director Corporate Services

There were no declarations.

Councillor Madlani, Chair of the Committee, accepted a deputation from Luca Salice on behalf of the Camden branch of the Palestine Solidarity Campaign in respect of whether there were explicit ethical criteria or ESG rankings which (amongst other consideration) influenced the Pension Fund’s investment decisions and that were binding on the Council’s investment managers.

Luca Salice summarised the main points as set out below:

·         As background he said that the Campaign’s ultimate aim was to persuade the Council to divest from companies that were complicit with Israeli human-right violations.

o    They believed that Israel was a state that practices apartheid, as had been recognized by various human-rights organizations including Amnesty International; also by the UN’s Special Rapporteur for Human Rights in the Occupied Palestinian Territories, Michael Lynk.

o    Camden had been at the forefront of the international movement of solidarity against apartheid in South Africa and ought not to be complicit with apartheid in Israel.

o    “Apartheid” was the crime of apartheid as defined in 2002 by Article 7 of the Rome Statute of the International Criminal Court.

·         The Campaign wanted to request that the Council adopted explicit ethical criteria that were binding on its investment managers, in addition to the usual criteria such as investment performance, risk management and balancing liabilities.

·         These criteria should exclude investments in companies that have a large involvement in fossil fuels, tobacco, armaments, oppression of LGBT people but also human-rights violations, in the UK and abroad. They were not singling out Israel.

·         They accepted that the Pension Fund had a fiduciary duty vis-à-vis its current and future members, but maintained that plan members were in support of an ethical policy. Unison was preparing a campaign. They asked if the views of plan members were being sought.

·         The recent Russian attack on Ukraine led many countries to impose economic sanctions against Russia. Some of its members supported those sanctions, some did not. But the fact remained that Western sanctions against Russia led to huge write-downs of investments. This had highlighted the investment risk of holding unethical investments. The investment community in the UK and abroad had underestimated the political risk to valuations in countries like Russia and Israel that systematically violated democratic norms.

·         They believed that the Council applied a policy of Engage not Divest when confronted with unethical investments. They opposed such a policy in principle, but if the Council believed that such a policy was effective it needed to provide evidence of its effectiveness and achievements through engagement.

·         They appreciated that investment managers needed clear criteria, as they could not query the council each time they were planning to make an investment. But those criteria needed to be binding on managers and be made publicly available for scrutiny by plan members and by voters.

·         Many companies had realized that the success of their business required them to uphold values that were in tune with the feelings and aspirations of their customers. Both customers and job applicants were attracted to companies whose values  ...  view the full minutes text for item 6.

Broadcast of the meeting

The Chair announced that “In addition to the rights by law that the public and press have to record this meeting, I would like to remind everyone that this meeting is being broadcast live by the Council to the Internet and can be viewed on our website for twelve months after the meeting. After that time, webcasts are archived and can be made available upon request. 

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If you are seated in the Chamber or participating via Teams, you are deemed to be consenting to having your contributions recorded and broadcast, and to the use of those sound recordings and images for webcasting and/or training purposes.”

Vote of thanks

Councillor Madlani informed the meeting that Lorraine Jones, committee officer, was retiring after working for Camden Council for 49 years. She had been clerk to the Pension Committee for most of the time he had been Chair and he appreciated the advice and support she had given him over those years. Lorraine had been born in Camden and had grown up and lived in Bloomsbury. The Chair, on behalf of the Committee, thanked Lorraine for her incredible service to the borough. Lorraine thanked the Chair and Committee saying that 49 years was a long time, but it had been an enjoyable time. It had been a pleasure and an experience working with Councillor Madlani, Committee Members and officers and everyone else associated with the Committee. She had clerked the Pension Committee for the last 7 years and she knew that her pension was in good hands.

There were no urgent items of business.

To approve and sign as a correct record the minutes of the meeting of the Pension Committee held on 3^rd March 2022.

RESOLVED –

THAT the minutes of the meeting of the Pension Committee held on 3^rd March 2022 be approved and signed as a correct record.

Report of the Executive Director Corporate Services

This report presents the performance of the Pension Fund investment portfolio and that of the individual investment managers for the quarter ended 31 March 2022

Consideration was given to the report of the Executive Director Corporate Services.

The Committee noted the performance of the Camden Pension Fund investment portfolio and the individual investment managers for the quarter ended 31 March 2022 (quarter 1 of 2022) and since manager inception.

The Committee noted in particular that:

·                The portfolio had a market value of £2.27bn at 31 March 2022, which represented a decrease of 3.2% over the quarter. However, this figure included the prepayment of secondary contributions by Camden Council, so excluding this, the overall return on the Fund’s investments was -3.0%.

·                Following the sale of the Harris portfolio, the current weight of equity had decreased to 57% from 65%. The substitution of funds following the move of the IDeA to Merseyside would also take equity down to 50% so the Fund would achieve its target equity allocation thus eliminating its overweight to that asset class. This happened in April so was not reflected in these figures but should be reflected in the report for next quarter.

·                The Fund sold out of Insight and had moved those funds into the CQS (LCIV) blended fund.

·                The Actuary (Hymans Robertson) valued the liabilities at 31 March 2019 at £1.613bn. This gave a theoretical estimated funding ratio in March 2022 of 120.8% (£1.845m of liabilities) and was based on the investment strategy returning in-line with the Actuary’s estimations for the coming years and decades. Long-term asset performance was considerably above the Actuary’s historic expectations.

·                Comparative benchmarking data from a universe of 64 other local authority pension funds (valued at £230bn) indicated that median Local Government Pension Scheme (LGPS) fund growth was -1.1% in the quarter to 31 March 2022. This represented the first negative quarter for the LGPS as a whole since the start of 2020. The Fund’s returns for this quarter were below this benchmark return.

·                Over 12 months the universe of PIRC funds delivered 9.2% with the Camden Fund under-performing this with a return of 7.0%. However, over three years the comparison with the PIRC universe was positive with the Fund returning 9.4% and the PIRC universe 8.6%.

·                The under-performance of Baillie Gifford had been the main cause of the Fund’s under performance.

·                The PIRC annual statistics showed that in one year the Fund ranked 61 but over three years had ranked 23^rd. The Equity results of the PIRC analysis confirmed that the Fund had not moved out of the bottom half of all funds’ performance in the last 20 years.

·                The Fund ranked 4th best in England and Wales for alternative investment classes and had also performed strongly in the Diversified Growth Fund asset class performing in the top third of funds in 1, 3, and 5 years.

With regard to Table 7 “Manager Performance” on pages 40-41, it was noted that an error had occurred in respect of the “Future World Global Equities”. The index for this asset had been reported incorrectly. A corrected version was circulated at the meeting.

It was noted  ...  view the full minutes text for item 10.

Report of the Executive Director Corporate Services

This report updates Pension Committee on the assumptions underpinning the triennial valuation for salary growth, discount rate (asset outperformance assumption) and other assumptions used in calculating the triennial valuation of the Pension Fund liabilities.

Consideration was given to a report of the Executive Director Corporate Services.

The Committee noted the update on the assumptions underpinning the triennial valuation for salary growth, discount rate (asset outperformance assumption) and other assumptions used in calculating the triennial valuation of the Pension Fund liabilities. The report built on thinking and prudent practice embedded in previous valuations and was part of the Fund’s transparent, evidence based and well documented approach to setting these assumptions. It reviewed the following assumptions:

·   future investment returns

·   the discount rate (used to price liabilities at today’s prices)

·   CPI inflation

·   salary increases

·   baseline longevity

·   future improvements in longevity

·   demographic assumptions – withdrawals, ill-health retirements, commutation (how much members choose to take as a lump sum versus conversion to a pension at retirement).

It was noted that, in order for the triennial valuation to progress, prior to the meeting a non-key executive decision was taken by the Executive Director Corporate Services, to increase the discount rate used in these assumptions, from 1.6% to 2.1%.  It was estimated that this would equate to savings in the region of 1.0% to 1.5% of pay which equated to £1.9 - £2.9m reduced employer contributions (from the Council’s perspective).

Barry Dodds of Hymans Robertson, the Actuary, was in attendance at the meeting and summarised the main points contained in the 2022 Valuation: Actuarial Assumptions as set out in Appendix A to the report. He explained that this was part of the initial stages of the 2022 Triennial Valuation. The main purpose of which was to come up with the appropriate contribution rates for the main employers to pay. He said that:

·         The Actuary had looked at the investment returns which might be achieved by the Fund going decades into the future and that formed the basis of the discount rate. The assets were projected forward to see what the Fund might hold in 20 years time together with the value of the benefits that might be paid over the coming decades. The discount rates were, therefore, needed because not all of that money was needed immediately. This was the most key value assumption.

·         The other two important assumptions were

-     CPI inflation as the benefits paid out by the Fund were linked to CPI and pensions increase by that level every year; and

-     Salary increases but these did not have as much of an impact as they previously did as pensions were now linked to career average rather than final salary based.

·         Demograpgic assumptions affected the timing of the payments and of which longevity (life expectancy) was the most important and presented the greatest uncertainty to a LGPS fund. The two components for setting longevity were “Baseline” a snapshot of how long people currently live, this was based on data held by Club Vita. The second was Future Improvements, that was how life expectancy increased over time. The Actuary recommended that no weight should be placed on the data from the last couple of years as there was little  ...  view the full minutes text for item 11.

Report of the Executive Director Corporate Services

This report presents an update to the risk register for the Pension Fund, with an action plan stating how risks will be managed.

Consideration was given to a report of the Executive Director Corporate Services.

The Committee noted an update to the risk register for the Pension Fund, with an action plan stating how risks would be managed. The Risk Register identified key risks that the Pension Fund faces in achieving its objectives. By considering risks and assessing their likelihood and impact the Fund could focus on what action was needed to manage them. The Fund’s Independent Investment Adviser and Actuary had been consulted and had fed into the register.

The risks were categorised under the following headings: Financial, Demographic, Regulatory, Governance and Administration. The updated Risk Register was presented in Appendix 1. Changes had been ‘tracked’ so new text or risks were shown underlined. Scores that had changed were also shown with tracked changes to help to identify new changes and show old text crossed through.

It was noted that the Employer risk (30) had reduced. This reflected the fact that the second largest employer in the Fund, the Improvement and Development Agency, had left and so no longer presents a risk to Fund.

The Committee also noted that the Inflation risk (5) had increased. This reflected the fact that all major economies and in particular the UK economy was experiencing extremely high levels of inflation in the short-term. The Actuary had commented on this in the Triennial Valuation Assumptions paper and the Fund would keep the inflationary impacts under review given all liabilities were linked to inflation.

In general, if risks changed from quarter to quarter then this would be reported at the next quarterly meeting, if significant.

Reference was made to the impact of oil prices on Fossil Fuel investment on the risk register. The Fund was invested in the Baillie Gifford Paris Aligned fund and the Future World Fund which took it away from those investments and shields from movements in fossil fuel prices. Karen Shackleton added that every risk had its counter-side and rising oil prices was an opposite risk to the fossil fuel risk which was identified here. This was about keeping the long-term strategic view for the Pension Fund and everyday shares and investment would be affected by different influences, however, the balance of evidence was climate change was strategically a threat to the Pension Fund.

It was suggested that although the Risk Register includes climate change and fossil fuel exposures, managers should be asked specifically about failure to adapt to climate change which had a knock-on effect on assets. Karen Shackleton said all engagement with managers was worth doing. One aspect that was not fully addressed was around physical climate effects, eg the increase risk of heat, flooding, fire and drought. These problems had been brought to the fore very recently. The Chair suggested that the wording for the Fossil Fuel and climate risks should be amended in due course to take account of this. In the meantime, managers should be asked what their exposures were in this area.

ACTION BY: Executive Director Corporate Services  ...  view the full minutes text for item 12.

Report of the Executive Director Corporate Services

This report brings Members up to date with engagement activity undertaken by the Fund and on its behalf by LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting. This work is important to the Fund’s ambition to be a fully engaged investor and demonstrates its commitment to Responsible Investment and engagement in Environmental, Social and Governance (ESG) issues as a way to achieve its objectives.

Consideration was given to a report of the Executive Director Corporate Services.

This report brought Committee Members up to date with engagement activity undertaken by the Fund and on its behalf by LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting. This work was important to the Fund’s ambition to be a fully engaged investor and demonstrated its commitment to Responsible Investment and engagement in Environmental, Social and Governance (ESG) issues as a way to achieve its objectives.

LAPFF had 85 members and 7 pools with the London Boroughs of Bromley, Kensington and Chelsea, and the Isle of Wight Pension Funds joining recently. Membership expectations for 2022/23 currently stood at 91 (out of a total of 98 funds in the UK), with 86 paying membership and 5 non-paying pool memberships.

Members of the Pension Committee were reminded that they were welcome to attend meetings of the Forum. As a member of LAPFF the Fund was entitled to contribute to and participate in the work plan organised by the Forum around issues of common concern. The Chair urged Committee Members to attend at least one meeting and asked officers to send out dates and papers in advance of meetings.

ACTION BY:  Executive Director Corporate Services

It was noted that Councillor Johnson attended these meetings on a regular basis. She found them very interesting and useful and praised the work of LAPFF.

LAPFF produce a quarterly engagement report to give an overview of the work undertaken. This was attached as Appendix A to this report and highlighted the achievements during the quarter. It also listed engagement undertaken with a number of companies. Of these companies the Fund held interests as identified in Table 1 on pages 141-143 of the report.

The companies at which LAPFF voted during the quarter were listed in Appendix B for information.

Committee Members were also reminded that the LAPFF Conference was due to be held from 7^th – 9^th December 2022 in Bournemouth to which the Chair encouraged them to attend.

The Chair said that “Make Your Money Matter” was running a campaign on deforestation and he had asked officers to look at how the Fund could reduce deforestation throughout its holdings and report back to a future meeting. He believed that LAPFF had signed up to it.

ACTION BY:  Executive Director Corporate Services

RESOLVED -

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

This report provides a quarterly update on developments at the London Collective Investment Vehicle (CIV) in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributes to the Government’s pooling agenda and drive to reduce costs in the Local Government Pension Scheme (LGPS).

Consideration was given to a report of the Executive Director Corporate Services.

This report provided a quarterly update on developments at the London Collective Investment Vehicle (CIV) in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributed to the Government’s pooling agenda and drive to reduce costs in the Local Government Pension Scheme (LGPS).

It was noted that the London CIV had £13.2bn of assets under management (AUM) as at 31 March 2022. Total assets pooled by Client Funds were valued at £26.67bn.

It was also noted that Councillor Madlani was Chair of the Shareholder Committee and would be involved in the appointment of the new CEO. He referred to the recent AGM and said that the LCIV was asked to publish their net zero plans and detail the steps they intend to follow.

It was noted that the LCIV annual conference would be held on 5^th and 6^th September in Twickenham to which Committee Members were invited to attend. Councillor Madlani said that he would be speaking at the annual conference in September and urged Committee Members to attend.

            TO NOTE: All

RESOLVED –

THAT the contents of the report be noted and any comments on progress be fed back to the Chair and officers.

            ACTION BY: All

Report of the Executive Director Corporate Services

This report details the Pension Fund cash flow and membership statistics for the previous year and over the longer term.

Consideration was given to a report of the Executive Director Corporate Services.

This report detailed a quarterly analysis of the cash flow for the Pension Fund during the last year and over the longer term and analysed the movement in scheme membership. This report was received annually by the Committee.

It was noted that:

·         Cash inflows in 2021/22 were £68.1m, a £2.9m decrease on the previous financial year. There was a fall in employer and employee contributions which was attributed to the exit plan of the Improvement & Development Agency (IDeA) who transferred to Merseyside from 1 April 2021.

·         The total outflows rose slightly to £69,1m, although payments made to scheme members fell by £2.1m. Net cash flows prior to transfer values were negative (a £1.0m outflow), owing to higher administration and investment manager costs compared to 2020-21. There was a significant rise in the value of both transfers in and out of the scheme, and there was a net transfer value out of £4.3m, as more members transferred their pension assets out of the Fund to other funds than transferred in.

·         After taking into account transfer value activity, but before investment income, the Pension Fund had a negative net cash flow of -£5.3m. This was much higher than it has been in previous years due to the high, negative, net transfer value, and higher-than-usual administrative and manager costs.

·         Employer contributions was the other main determinant of cash flow position. The increased employer contributions were driven by pensionable pay and the rates set at the Triennial Valuation.

·         Cash received from investment income was the final factor that had consistently increased cash in the Fund and ensured a cash flow positive position. Investment income in 2021/22 was £13.1m which was £2.8m higher, substantially stronger, than in 2020/21. This was attributed to the strong performance of assets over most of 2021/22, and corporate profits more generally.

·         After investment income, the total net inflow to the Pension Fund in 2021/22 was £7.7m, slightly reduced compared to 2020/21, owing to the increased costs mentioned and the higher negative net transfer values.

·         The total number of members (22,020) had decreased by over 700 mainly due to the transfer out of individuals from the Local Government Management Board, the IDeA, and Local Government Employers, to the Merseyside Pension Fund. This transfer constituted 933 former members across the active, deferred, and pensioner categories.

·         There was a net decrease of 344 new active members into the Fund compared to a small increase of 1 in 2020-21.

·         Deferred membership had fallen, compared to last year, due to more members than usual from this category retiring or leaving the scheme. 368 of the 769 total leavers from this category were transferred to Merseyside; if this transfer is excluded, the figures were broadly equivalent to previous years.

·         Pensioner membership contracted slightly in 2021-22, with a net decrease of 137, but excluding the transfer to Merseyside had remained broadly in line with previous years.

It was noted that this was  ...  view the full minutes text for item 15.

Report of the Executive Director Corporate Services

This report sets out items scheduled for future agendas of this Committee together with a record of training/ meetings attended and a list of future training opportunities.

Consideration was given to a report of the Executive Director Corporate Services.

The Committee noted the items scheduled for future agendas of this Committee together with a record of training/meetings attended and a list of future training opportunities.

In response to a question, it was confirmed that the “TFCD” was the Task Force on Climate Related Financial Disclosures.

It was noted that the Investment Beliefs were set 3 years ago so officers were looking at arranging a workshop for Committee Members, Pension Board Members, Trade Unions and Officers to discuss if they were still appropriate or should be updated.

ACTION BY: Executive Director Corporate Services

Members of the Pension Committee were reminded that they, together with Members of the Pension Board and officers, had been enrolled on the Hymans online learning academy. Training was delivered via videos, with jargon buster crib sheets and a quiz on each module. Completion could be tracked for each user so a record would be kept of which topics had been covered and which topics users needed to focus on. The training met the requirements of the CIPFA Knowledge and Skills Framework and the Pension Regulator’s Code of Practice. It was suggested that everyone should try to do at least one module before the September Committee meeting.

            TO NOTE: All

It was agreed that officers circulate details and registration link for the LAPFF conference in September together with a reminder regarding the Hymans on-line training.

ACTION BY: Executive Director Corporate Services

RESOLVED –

THAT the contents of the report be noted.

There was no urgent business.