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 Jenny Mulholland, Gio Spinella and Shiva Tiwari.

There were no declarations.

Broadcast of the meeting

The Chair to announce the following: ‘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.

If you have asked to address the meeting, you are deemed to be consenting to having your contributions recorded and broadcast, including video when switched on, and to the use of those sound recordings and images for webcasting and/or training purposes.’

Any other announcements

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, he reminded everyone that the meeting was being broadcast live by the Council to the Internet and could be viewed on the website for twelve months after the meeting. After that time, webcasts were archived and could be made available upon request. 

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If you were seated in the Chamber or participating via Teams, you were 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.”

Welcome

Councillor Madlani welcomed the Principal Committee Officer Sola Odusina who was taking over clerking of the Pensions Committee from Lorraine Jones, and Ashleigh Calf newly Co-opted Member of the Pensions Board.

Agenda Pages

The Chair informed members that pages 84-85 and 140-141 of the restricted agenda should be ignored as they were printing errors.

There were none.

There were no urgent items.

To approve as a correct record the Minutes of the meeting of the Pension Committee held on 21^st July 2022.

RESOLVED –

THAT the minutes of the meeting of the Pension Committee held on 21st July 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 30 June 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 30 June 2022.

The Committee noted in particular that:

·       Financial Market Returns for the quarter had seen poor performance across the board for a number of reasons including, worsening inflation, interest rate hikes and rising fears of recession in many other sectors. Global equity bond markets had also seen big losses across the board which had resulted in a negative quarter for the fund as a whole.

·       It was only the UK property market that had seen any positive growth over the past quarter. North American equities suffered the biggest falls, but all equity markets had been negatively impacted by the ongoing war in Ukraine, continued lockdowns in China leading to supply chain disruptions and climbing rates of inflation – and with those, increasing interest rates. Corporate and government bond indices sharply declined following rate rises.

·       The US dollar had strengthened in light of anticipated market risks, which would affect emerging markets further. Consumer Price Index in the UK was expected to reach 11%, which in turn would limit economic growth.

·       The most resilient assets in the quarter had once again been property and commodities.  There were, however, increasing expectations of a slowdown in British house prices, and in global commercial property. Commodity prices, especially for energy had fluctuated this quarter, and in many cases had declined from their first-quarter highs; however, the drivers behind high commodity prices, such as supply-side issues caused by war, and inflation, remained.

·       Table 2 in the report provided the value of the assets held by each investment manager. The portfolio had a market value of £1.89bn as of 30 June 2022, which represented a decrease of 15.3% over the quarter. It was highlighted that this did not take into account the transfer of £202m of assets (9% of assets) to Merseyside Pension Fund on behalf of the Improvement and Development Agency transfer which occurred in this quarter. Taking this transfer into account, the portfolio had fallen in value by 6.2% compared to the previous quarter.

·       Table 3 showed the allocation of assets to the target weight, while Table 4 highlighted the value of the Pension Fund over time and the proportion represented by each different manager. Following recent rebalancing, the fund’s equity allocations were now much closer to the strategic asset allocation levels, though this required ongoing monitoring. Table 5 showed that although the fund remained outside the target ranges in passive equities, property and cash was now within the target ranges for Douglas Growth Funds (DGFs), active equity and fixed income which had been brought about by the recent rebalancing efforts from the last quarter.

·       Paragraph 3.1 of the report provided a brief estimate of the liabilities of the fund while paragraph 3.3 provided a theoretical estimate as of March 2022 of 101.2% which was based on the investment strategy  ...  view the full minutes text for item 8.

Report of the Executive Director Corporate Services

This report presents the performance of the Pension Fund investment This report presents the initial whole fund results of the triennial valuation from the Pension Fund’s actuary (Hymans Robertson).

This report has an appendix, which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has, therefore, been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

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

The Chair highlighted to members that there was a part II not for publication exempt appendix B to the report which contained commercially sensitive information and Hymans intellectual property. Hymans were happy to respond to questions in the public part of the meeting but did not want to share how the calculations were arrived at publicly.

The Head of Treasury Management and Barry Dodds, from Hyman Robertson, the Pension Fund’s actuary presented and summarised the main points in the Actuary’s report which was attached at Appendix A.

It was noted that:

·       Every three years the Fund’s assets and liabilities must be valued by a qualified actuary as set out in the regulations which govern the Local Government Pension Scheme (LGPS). The last valuation was undertaken in 2019 by Hymans.

·       The primary purpose of the valuation was to determine whether the Pension Fund had sufficient assets to meet its long-term pension liabilities.

·       The report built on the discussion at the July Committee setting out work reviewing the appropriateness of the discount rate used (4.4%), salary increases (3.2%) the CPI inflation (2.7%) and life expectancy. These assumptions build on thinking from previous valuations and gave consistency whilst being prudent and realistic.

·       The Pensions Shared service was responsible for preparing and submitting good quality data and the actuary for testing the veracity of this data and confirming the data was of a good standard and fit for the purposes of the valuation.

·       The first results that come out of the valuation were the initial results for the whole fund. This included looking at the assets at one point in time (31^st March 2022) and comparing this to the amount of money required to be paid out over the coming decades considering all the assumptions highlighted above and the investment return assumption. (Highlighted on page 75 of the agenda).

·       The Fund had used 4.4% as the discount rate which had a 70% chance of being achieved.

·       The funding level had increased from 103% to 113%. Over this triennial valuation period the Fund’s investment return had been 31% rather than the forecast return of 14.2%.

·       Liabilities had increased since the last triennial valuation by £128m to £1.741bn. However, the assets had also increased by £316m to £1.973bn, which meant that the surplus had increased from £43m in 2019 to £233m as of 31 March 2022. The increase in surplus had been largely driven by strong investment performance since 31 March 2019.This indicated that the Fund was in a significantly better position than in 2019.

·       The impact of changes in future expectations on the funding position was that investment returns would be slightly lower. This would increase liabilities and result in a higher pay out of benefits. Some of the impacts included higher inflation in the short term and a longer life expectancy.

·       The individual employer funding levels were highlighted in the graph on page 79 of the agenda. The actuary was  ...  view the full minutes text for item 9.

Report of the Executive Director Corporate Services

This report considers the contribution strategy for the Council as the major employer in the Pension Fund, amongst 27 other much smaller employers. It considers the current stabilisation strategy that is applied to the Council (rates move within a window capped by +1% and a floor of -1%) and presents analysis from the Fund’s actuary for seven different contribution strategies to be applied from 1 April 2023 in 4 different models.

This report has an appendix, which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has, therefore, been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

Consideration was given to a report of the Executive Director Corporate Services regarding the contribution strategy for the Council as the major employer in the Pension Fund, amongst 27 other much smaller employers.

The Committee also considered the current stabilisation strategy that was applied to the Council and an analysis from Hymans Robertson (the Fund’s actuary) for seven different contribution strategies to be applied from 1^st April 2023 in four different models.

The Council’s Head of Treasury and Financial Services introduced the report and Barry Dodds from Hymans Robertson who was also present at the meeting summarised the key points contained in the valuation report.

It was highlighted that

·       Camden Council was the largest and main employer in the fund.

·       The Council was different from the other employers in that it had tax raising powers, strong revenue resources and was able to operate a stabilisation policy.

·       The Funding Strategy Statement governed how employers in the fund were managed.

·       The Committee’s role was to consider whether the contribution strategy as set out in the report was acceptable in order to ensure that the Pension Fund achieved its aim of being fully funded and being able to finance its liabilities under the scheme.

It was noted that Hymans had modelled seven contribution strategies under four different scenarios, as set out below:

·               Freeze contributions in 22/23 forever

·               Freeze contributions in 22/23 for the next 3-year triennial valuation cycle and then revert to stabilisation (+/-1%)

·               Freeze contributions in 22/23 for 3 years and then stabilisation plus a cap of 32.5%

·               Step down contributions by 1% in each of the next three years and then stabilisation

·               Step up contributions by 1% in each of the next three years and then stabilisation

·               Reduce contributions by £10m over three years and then stabilisation

·               Reduce contributions by £15m over three years and then stabilisation

The four scenarios were

·       Baseline – taking the 2019 triennial valuation assumptions

·       Checking the outcomes in 14 years’ time (to show progression since last time)

·       Asset shock impacts (a reduction in assets of 10%)

·       Including changes to the Discount rate (set at 2% and agreed at the July committee)

Hymans had set out that all contribution strategies would be acceptable. It was noted that it was important that the valuation continued with the level of prudence built into previous triennial valuations. However, in light of the higher contributions paid over the last triennial valuation cycle compared to other LGPS Funds, the Council, as the main employer in the Fund, could maintain a similar level of prudence and likelihood of success and have a similar outcome in the worst 5% of outcomes by reducing rates by 1% in each year. This balanced prudence with affordability.

Based on this analysis the recommendation to the Committee was to reduce contributions by £10m over the next three-year triennial valuation period and view this as a continuation of the prudence embedded in the 2019 and previous valuations, whilst allowing the Council to reduce rates slightly to fall back  ...  view the full minutes text for item 10.

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.

The Head of Treasury and Financial Services informed the Committee that this was a regular report presented to Committee Members updating them with engagement activity undertaken by the Fund and on its behalf by LAPFF (the Local Authority Pension Fund Forum). 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.

He also highlighted that:

·       LAPFF was a collaboration of 91 Pension Fund members from all over the Country. Kent County Council had also become a new member.

·       The LAPFF held regular meetings and as members of the Pension Committee 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 next meeting of the LAPFF was a Business Meeting and AGM on Wednesday 5 October 2022 in Westminster which members of the Committee were welcome to attend. Members were asked to let officers know if they wished to attend.

·       There was also the LAPFF Conference, taking place in Bournemouth from 7-9 December 2022.

             TO NOTE: All

·       LAPFF produced a quarterly engagement report to give an overview of the work undertaken. This was attached as Appendix A to the report and highlighted the achievements during the quarter. It also listed engagement undertaken with a number of companies.

·       The Quarterly Engagement Report for April to June discussed a number of important issues which are detailed in Appendix A to the report. These issues included reports on joint ventures and how they operated, human rights and climate change initiatives.

·       There was also an item on Electric Vehicles and issues relating to increasing charging facilities which was of particular relevance to Camden residents.

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A member queried in relation to the ongoing conflict in Ukraine, what additional pressure the Pension Fund could put on those companies that had business interests with Russia.

In response the Head of Treasury and Financial Services commented that the LAPFF had done some work on Ukraine and published a statement, details of the work and the nature of this engagement could feature in future Engagement reports.

The Chair commented that as part of due diligence it would be interesting to see which companies still had business interests in Russia and what the Pension Funds exposure was. He remarked that he would like to have a report on which companies the Pension Fund had invested in was still doing business with Russia and the nature of the Pension Funds exposure.

ACTION BY:  Head of Treasury and Financial 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 £12.75bn of assets under management (AUM) as of 31 July 2022. Total assets pooled by Client Funds were valued at £26.21bn.

·       The re-alignment of the LCIV MAC Fund to introduce PIMCO’s diversified income strategy and create a two-manager blended structure which began in February 2022 had now been completed. AUM as of 31 July stood at £1,234m with a 51/49% split between PIMCO and CQS. There have been £398m new net inflows, resulting in a £250m redemption from CQS, compared to an initial estimate of £437m.

·       The LCIV Inflation Plus Fund, managed by Aviva, and in which Camden holds £92m of assets, was being retitled to the LCIV Real Estate Long Income (RELI) Fund. This was to reflect the fund’s large exposure to property.

·       Other areas of focus included rising power prices which had benefited renewable power producers, updates on cyber security and mitigating financial risks

It was reported that the Chair, Vice Chair, of the Pension Committee along with Cllr Mulholland, the Cabinet Member for Finance and Cost of Living, and Head of Treasury and Finances attended the CIV meeting. The Committee was informed that the event was a great success with the Chief Exec of the CIV presenting on pooling progress, the Chief Operating Officer presenting on operational issues and the Chief Investment Officer discussing investment products and the roadmap. There were also presentations on the CIV’s monitoring process and policies, the fund launch framework, the CIV net zero commitments, and a few presentations on diversity, equity and inclusion.

The Chair commented that the conference was very useful and interesting, it was likely to be an annual event and encouraged members to attend future events.

RESOLVED –

THAT the contents of the report were noted.

Report of 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.

Members agreed to schedule a meeting to refresh and review Investment Beliefs on 17^th October 5.30pm. The Pension Fund Accountant would send invites to members diaries.

The chair commented he would prefer that future Fund Manager meetings should alternate between virtual and face to face meetings. There was a Fund Manager meeting scheduled for 10^th October. Invites for future Fund Manager meetings would be circulated by the Pension Fund Accountant.

ACTION BY: Pension Fund Accountant

RESOLVED –

THAT the contents of the report be noted.

There was none.