Agenda item

Report of the Executive Director Corporate Services

This report presents the results of an investment strategy review by our Investment Consultant, Isio, on the Fund’s strategic asset allocation. The Pension Committee agreed:

1.     To agree in principle to move to the asset allocation recommended in strategy 1 in the non- equity strategy paper (Appendix A);

2.     To receive a report on implementation of the Long Lease Property allocation (5%) in September evaluating the London CIV’s inflation plus sub-fund alongside other options;

3.     To receive a report on how to achieve the increase in inflation linked assets (additional 5%) in November;

4.     To agree in principle equity allocations recommended in the equity strategy paper (Appendix B) which reduces equity exposure from 60% to 50% and sets the active equity proportion within equities to 40%;

5.     To receive a paper in November on how to fill the 30% equity allocation (Appendix B) to a more specific ESG focussed allocation and consider operational issues in how to trim the active equity managers and implement the strategy

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appendix which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication.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 Board Members only.

If the Board 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 Interim Director of Finance summarised this report which presented the results of an investment strategy review by the Fund’s Investment Consultant, Isio, on the Fund’s strategic asset allocation. He explained that this was one of the most important reports the Pension Committee had to consider.

Asset allocation was a major driver of Fund returns more so that individual fund manager performance. From a strategic asset allocation perspective, the Fund was not wildly different from the PIRC universe in terms of the way the Fund invested its assets.

He highlighted the following points in the report:

-   The Fund had an above average UK equity basis and the report looked at the split of overseas equities

-   It provided a core value at risk analysis, which showed a lot of equity risk and inflation risk and suggested how this could be reduced

-   It provided a liquidity profile and cash flow profile

-   It also reported on the various scenarios of different assets, long lease property, inflation linking and how passive and active assets could be changed

-   It settled on inflation linked assets and long lease property

Pension Board Members noted that Appendix C to the report contained more information on the non-equity review. This was a Part II appendix, as it contained information relating to the financial or business affairs of particular persons and was, therefore, not available to the public. Board Members confirmed that they had read the appendix and would take it into account when making the decision.

It was noted that the Fund’s actual position diversified from its strategic choices. It was explained that the increase in equity markets had driven the imbalance. It had been decided to take money away from equities and give it to fixed income. Some funds had decided to balance this on a quarterly basis, but the Pension Committee had chosen not to do this as money would be taken away from the assets classes doing well and given to those performing poorly. The Fund’s asset manager would buy assets at a low price which he believed would do well in the future and then would sell them when their value had increased. It was decided to sell off some assets with volatility as there was risk in those and buy other asset classes which were less volatile.

In response to a question, it was noted that the Pension Committee had considered the long term investment in property, particularly in city centre retail property, given the impact Covid-19 had affected the retail sector. Item 14 “Long Lease Property” (LLP) on the agenda said that the Fund was investing in a LCIV fund which looked at the rental yield of LLP over a number of years. This included sectors such as offices, retail distribution and other opportunities, some of which were performing well. It was noted that the Pension Committee was considering all these factors. Councillor Olszewski suggested that Councillor Madlani, Chair of the Pension Committee could be asked to focus on how the Pension Committee was looking at these issues when he attended the next Pension Board meeting.

          TO NOTE: Executive Director Corporate Services

The Pension Board noted that the Pension Committee agreed the following:

1. To agree in principle to move to the asset allocation recommended in strategy 1 in the non- equity strategy paper (Appendix A);

2. To receive a report on implementation of the Long Lease Property allocation (5%) in September evaluating the London CIV’s inflation plus sub-fund alongside other options;

3. To receive a report on how to achieve the increase in inflation linked assets (additional 5%) in November;

4. To agree in principle equity allocations recommended in the equity strategy paper (Appendix B) which reduces equity exposure from 60% to 50% and sets the active equity proportion within equities to 40%;

5. To receive a paper in November on how to fill the 30% equity allocation (Appendix B) to a more specific ESG focussed allocation and consider operational issues in how to trim the active equity managers and implement the strategy.

RESOLVED –

THAT the contents of the report be noted.