Agenda item

Report of the Executive Director Corporate Services

This report presents the report by our Investment Consultant, Isio, on the proposed Long Lease Property (LLP) mandate which was proposed as part of the Investment Strategy Review in July 2020. The Pension Committee agreed:

1.     the appointment of the London CIV Inflation plus sub-fund to manage 5% of the Fund’s assets (£90m) as set out in paragraph 3.1

2.     to fund this mandate by withdrawing assets from Standard Life and Ruffer first and then with cash in hand from the contribution prepayment as detailed in paragraphs 2.9 and 2.10.

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appendix which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication.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 report by the Fund’s Investment Consultant, Isio, on the proposed Long Lease Property (LLP) mandate which was proposed as part of the Investment Strategy Review in July 2020.

Isio had been commissioned to review the London CIV’s Inflation Plus fund, which had been identified as a good fit for this asset allocation. Their work was also scoped to examine other best in class managers and formed Appendices A and B to the report. Isio were asked to consider Environmental, Social and Governance issues in their brief as well as the Independent investment advisor’s points.

It was noted that Appendix Aset out Isio’s report on long lease property and the fit of the London CIV’s Inflation plus sub-fund to Camden’s requirements. The Pension Board also noted that Appendix B set out further information on long lease property investment managers and their processes. 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.

The London CIV’s sub-fund was managed by Aviva and their presentation was contained at Appendix C.

It was noted that following the July Pension Committee meeting, the Camden Fund agreed, in principle, to make a 5% allocation to long lease property. Given the regulatory framework for LGPS funds, there was a preference to invest via the London CIV if a suitable investment option is available. London CIV did not currently offer a proposition with 100% long lease property exposure, however, their newly established Inflation Plus Fund would be comprised of LLP assets in the majority, alongside other real assets predominantly with long dated inflation linked characteristics. Isio believed the fund would deliver the key investment benefits that an LLP allocation would bring to the Camden portfolio. Namely, a stable and inflation-linked income yield, access to an illiquidity premium, and cost effective risk-adjusted returns.

Although supporting the proposal to invest long term in property, as it was a good asset class, some Pension Committee members felt that consideration needed to be given to the long term impact of Covid-19 on property, particularly commercial property, given that there was a move away from offices to home working. Isio’s view was that there would be a correction in property prices over the next 6 – 12 months, particularly in the core commercial market, less so in long lease which was more resilient. The London CIV would buy high quality property with good quality tenants in it for the long-term, 20 years plus. Their view was that value came from the income, rather than the capital prices. Page 312 showed the property sectors and current range of assets all with leases in excess of 20 years and all were doing well.

The Pension Board noted that the Pension Committee had agreed:

1. The appointment of the London CIV Inflation plus sub-fund to manage 5% of the Fund’s assets (£90m) as set out in paragraph 3.1; and

2. To fund this mandate by withdrawing assets from Standard Life and Ruffer first and then with cash in hand from the contribution prepayment, as detailed in paragraphs 2.9 and 2.10.

RESOLVED –

THAT the contents of the report be noted.