Agenda item

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.

 

The Treasury and Pension Fund Manager introduced the report outlining the developments and progress of the LCIV as at 30^th September in creating sub funds for the spectrum of asset classes, on-boarding of assets and development of the CIV staff resource.

 

Client Relations Manager (LCIV) Silvia Knot-Martin and Head of Real Estate (LCIV) Christopher Osbourne were in attendance and provided the following information to the Committee.

 

·       LCIV during 2024 launched 6 funds and 1 service.

 

·       There were 4 public market funds, 3 funds were bought and maintained credit funds which were a full suite which offered short duration, long duration and all maturities funds.

 

·       £1.4 billion was raised from 9 investors

 

·       Inside Investment Management was selected to manage these funds.

 

·       At the end of October, the Global Active Value Funds had £195 million from 2 investors with a third investor adding £150 million in January.

 

·       Wellington Investment Management were selected to manage this fund.

 

·       The four funds’ strategies were committed to a decarbonisation pathway to achieve net zero by 2040.

 

·       Accountability and transparency were embedded in the design of the Global Equity Value Fund to ensure that 60% of the current weighted average carbon intensity was reduced by 20-30% and achieved net zero by 2050.

 

·       To achieve these targets would involve monitoring the achievements of the existing targets to ensure that ambition translated into action.

 

·       There would be continued engagement to encourage additional investing companies to develop a transition plan, stewardship escalation options with voting and writing letters and portfolio construction considerations, if investing companies did not progress as envisaged.

 

·       The Global Activity Fund would have certain exclusions to thermal coal mining, some coal power generation and controversial weapons.

 

·       With the 2 launched private market funds, the Nature Based Solutions Fund would primarily invest in sustainable forestry and agriculture and exposed to Australia, New Zealand and the USA. 20% in the UK and Europe and up to 30% in emerging markets in Chile and Brazil.

 

·       The Private Debt Fund would invest primarily in mid-market direct lending in Europe and North America. 

 

·       The service launched was focused on LCIV’s partner funds which had separate managed accounts such as Camden with CBRE Investment Management.

 

·       The pooling solution involved transferring the investment management of real estate separate managed accounts across to LCIV.

 

·       It still qualified as under pooled management so it still offered partner funds the opportunity to advance their pooling agenda.

 

·       This represented a governance change for Camden rather than an investment change.

 

·       The UK separate managed account would continue to be actively managed by CBRE IM.

 

·       Through on boarding partner funds on to this real estate pooling service opportunities had been identified to deliver cost saving particularly at the underlying manager level.

 

·       The transition to the service was intended to cause minimum disruption to partner funds.

 

Responding to Committee members questions, the LCIV Client Relations Manager and Head of Real Estate provided the following information:

 

·       In relation to whether affordable housing would be geographically spread across the whole of the UK, currently the exposure through CBRE Uk Affordable Housing Fund and through the Octopus Affordable Housing Fund there was a bias towards the Southeast of the UK though this was in the early stages of the fund. As more capital was drawn and more investments made it was expected that the geographical diversification would broaden.

 

·       CBREIM would continue to manage the portfolio, it was a governance change rather than an investment change.

 

·       The CBRE would have full discretion to continue managing Camden’s separate managed account in the UK and would continue to manage this in line with their best ideas in the UK although there was the option for Camden to change the geographical direction and tweak it.

 

·       In the separate managed account, there was the option of allocating globally which would provide more diversification across the globe and open up more investment opportunities.

 

The Independent Adviser advised that as the partner funds matured and paid back there was an opportunity to request that CBRE’s mandate be extended to include global property.

 

Answering further questions the Head of Real Estate LCIV provide the following responses:

 

·       CBRE already accessed the Global Alpha Fund which was a very diversified well performing global fund. If Camden was to access the Global Real Estate Fund it would also gain access to a new secondary fund recently launched by CBRE.

 

·       In relation to the difference between a service and a fund, in providing the service Camden would continue to be the legal owner of the units and LCIV would continue to manage Camden’s separate managed accounts. It involved treating the separate managed account individually and doing what was best for the separate managed account over time.

 

·       The service would offer more than a fund would offer because it allowed for flexibility of not being forced to sell or incur transaction costs on liquid investments. Allowing for maximisation of the value of holdings without incurring costs.

 

·       It was about consolidating Camden’s CBRE holdings and getting a saving on fees.

 

·       The global solution was intended to invest in CBRE Global Alpha Fund and the CBRE Real Estate Partners Fund.

 

·       The Committee requested that a follow up session be arranged with LCIV partners to discuss in further detail and understand the new indirect Real Estate Pooling service being offered.

Action By: Treasury Pension Fund Manager / Committee members / LCIV partners

 

The Treasury and Pension Fund Manager provided a short update on the Sustainability Working Group informing the Committee that the LCIV were drafting an addendum to their stewardship policy to address investment concerns in conflict zones.

 

The proposals were to use detailed data sets to identify companies with potential human rights controversies. The policy framework would follow international law and allow partner funds the flexibility to either include or exclude specific investments based on their preferences. Their engagement with companies would be on the basis of an explain or divest method to support long term investment.

 

The LCIV Client Relations Manager informed the Committee of a survey led by Damon Cook one of the Pension Leaders which would be circulated to all Partner Funds in due course. The survey was canvassing views on how to address human rights issues in conflict zones.

 

The Chair also advised that the LAPFF had sent out a survey to seek views on engagement topics members were interested in. The survey was due to close next week. For those members that had not received the survey they could ask officers to recirculate.

 

RESOLVED –

 

THAT the contents of the report were noted.