Agenda item

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 September 2024.

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

The Treasury and Pension Fund Manager introduced the report which outlined the performance of the Camden Pension Fund investment portfolio and the individual investment managers for the quarter ended 30 September 2024.

Karen Shackleton, Independent Advisor, introduced her colleague Nick Davidson who provided the Committee with a brief background of his career.

The Independent Advisor provided the committee with an overview of her comments on the financial markets and provided detail on the performance of the individual Investment Managers, as set out in Appendix A to the report.

Responding to Committee members questions, the Treasury and Pension Fund Manager, Independent Investment Adviser and Silvia Knott-Martin, London CIV Client Relations Manager provided the following information:

• In relation to whether the carbon intensity target for the Baillie Gifford Diversified Growth Fund was being diluted, the strategy was Paris aligned which was expected to align with the Pension Fund’s climate goals.
• Baillie Gifford was using its restricted carbon budget with competing stocks to contribute to the transition to a green economy in areas such as wind turbines as well as Ryanair’s appetite to invest in innovative new sustainable fuels. The stocks may come out of the portfolio over time if they were unable to keep pace with science-based government targets.
• It was about challenging the Fund Manager, making sure what they were saying was backed up by evidence and then monitoring them also expressing concerns about having such a holding in the portfolio.

Commenting further on the issue of Baillie Gifford meeting the Pension Fund’s carbon reduction targets, the Chair remarked that in the meetings he had with them, disappointment and concerns had been expressed about the declining commitment to achieving the Paris aligned targets. He had been partly reassured by the Head of the Environment Social and Governance (ESG) Team although the dialogue would need to be continued with them, including the requirement for them to keep the Committee informed of the public commitments they could keep.

In relation to a question about the assumption that had led to a 151% funding level, the Treasury and Pension Fund Manager advised that the main changes were the discount rate, noting that at the last triennial valuation the discount rate used was 4.4%, and as of September this had gone up to 6.3% which was a reason for the reduction in liabilities.

There had also been pension increases which in March 2022 was 2.7% and as of September 2024 was 2.3% which also contributed to a reduction in liabilities.

Commenting further on liabilities and the interest rate, the Independent Adviser informed the Committee that it would not be advisable to reduce contributions too quickly until it was clear where long term interest rates were going to settle.

Responding to a follow up question about how confident the Committee should be with figures quoted, the Treasury and Pension Fund Manager commented that Hyman Robert’s the Council’s Actuary had considered this in detail before taking this assumption forward 

Answering a further question about whether the report reflected or considered any recent budget decisions or election results, Nick Davidson noted that as expected there had been a degree of volatility around the election results but it was difficult at this stage to predict what market reaction to this would be.

The following information was provided in response to further questions:

·       In terms of alternative options available to the Pension Fund, with any private market investment, there was the option of not committing to the next fund.

·       There was the indirect real estate pooling option, whereby the Pension Fund Account could get access through the separate managed account to Global Real Estate which would provide access to real estate secondary opportunities.

·       In terms of engagement with Pimco and CQS, London CIV was doing a lot of work behind the scenes understanding better the carbon footprint of these investments as well as looking at how to collaborate to improve the way carbon intensity of the portfolios was being measured.

·       At the end of October London CIV finalised implementing some enhancements with all the PIMCO strategies to improve carbon metrics. The new data points should show over time carbon intensity being reduced.

·       It was expected that with the PIMCO portion after quarter 4 the enhancement in the reporting of the data points in the climate metric would start to show up on the City West Portfolio.

·       London CIV aimed to roll out in 2025 the new investment reports, with the aim being that the Committee would see improvements on the coverage as well as the enhancement of the PIMCO segment of the portfolio.

·       The Independent Adviser commented that the challenge required was finding out how engagement was conducted with companies to reduce their carbon emissions.

·       In terms of the drivers for the LGIM Future World out performance, it was most likely due to the differences in the sector weightings particularly with oil and energy. However, the Independent Adviser agreed to check this information and report back on whether this was just a quarter blip.

Action By: Independent Adviser

·       In terms of how often discount rates were changed, this was around the triennial valuation which happened every 3 years and was carried out by the Council’s Actuary who went into the details of the Pension Fund to provide a long-term perspective of what the liabilities were and advise what the funding level should be.

·       All the different funds had different risk profiles and different strategies with different recovery periods. If they had deficits, they had different contribution rates with tailored strategies.

·       Managers went through cycles of out performance and under performance, however what was required was that over the long term the active managers would be delivering strong good performance.

·       In assessing a company’s performance, you would be looking at the organisation and agreed terms of reference, changes to the investment process, performance including looking at whether this was the expected performance in this particular market cycle. All these factors would determine or lead to a conclusion whether the mandate should be terminated or not. This was considered normally at the 3-year review.

A Committee member suggested that it would be useful to look at Councils with similar sized Local Government Pension Schemes (LGPS) and strategies to Camden to benchmark and compare performance with.

The Chair commented that in light of Baillie Gifford withdrawing from the Net Zero Asset Managers Alliance the Committee would like to scrutinise all its other fund managers on their membership and what they were doing proactively on climate issues.

He asked that for the next meeting it would be useful to get confirmation from the Fund Managers on who was in the Net Zero Asset Managers Alliance, the memberships they were actively involved in on sustainability and climate and to show how they actively contributed to those.

He asked that the information be provided in the form of a table to track which managers were proactive on this issue and that the information should be sought by writing formally to all the managers for confirmation.

Action By: Treasury Fund Manager

RESOLVED –

THAT the contents of the report be noted.