Agenda and minutes

The minutes of the meeting held on 27 November 2020 were taken as read, confirmed and signed.

The Chief Executive reported that no questions had been received under Standing Order 34.

The Chief Executive reported that no questions had been received under Standing Order 7(3) and 7(5).

There were no urgent items for consideration.

The Chairman invited members who wished to do so to declare any interest in respect of items on the agenda for the meeting.

Cllr. M. Graham and Mr. P. Osborne CC declared personal interests in reference to any discussion held on farming as part of the Annual Review of the Asset Strategy Structure related to their positions as landowners.

The Committee considered a report by the Director of Corporate Resources seeking approval to consult on proposed changes to the Funding Strategy Statement following regulation changes to employer risks and exits. A copy of the report, marked ‘Agenda Item 6’, is filed with these minutes.

Arising from the discussion the following points were noted:-

i.       The Fund was not minded to allow reviews of employer contributions outside of the usual Fund valuation process. In exceptional cases where a Fund employer was experiencing genuine financial difficulty however, the Fund would look to review the contribution rate if it were to increase the chance of repayment. The risk would first be considered alongside risk to other Fund employers, and would be assessed to consider putting additional security in place. The Fund would seek actuarial advice on all cases.

ii.     When an employer withdrew from the Fund, the Fund would provide all information to the Actuary to allow them to assess the potential ongoing pension costs, including spousal payments. The Actuary would then provide the Fund with the cessation termination value, which the employer would pay to remove ties with the Fund.

The Committee welcomed the proposals and acknowledged that consultation would begin on 1^st February 2021 for four weeks to allow employers to review the proposals and feedback as part of the consultation. 

RESOLVED:-

a)    That the draft Funding Strategy Statement, in relation to changes on employer risks and exits, be approved for consultation with employers.

b)    That a further report be submitted to the Committee in the year setting out the outcome of the consultation and submitting the final Funding Strategy Statement for approval.

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The Committee considered a report of the Director of Corporate Resources which sought approval for a Responsible Investment (RI) Plan 2021 which set out the Fund’s approach to improving its management of responsible investment risks. A copy of the report marked ‘Agenda Item7’ is filed with these minutes.

Arising from the discussion the following points were noted:-

i)      The 2021 Responsible Investment Plan was a continuation of what had been agreed within the 2020 Members were pleased that the Plan evidenced the Fund’s commitment to continual improvement and oversight of RI on the Fund.

ii)     LGPS Central, in collaboration with partner funds, had agreed four key stewardship themes, including ‘fair tax payment and tax transparency’. Engagement looked to support policy initiatives regarding transparency and voluntary country-level tax disclosure. Members were assured they would get a chance to question LGPS Central on the matter at a future meeting.

iii)   Members were assured that the Fund’s approach to RI was to engage rather than divest in relation to the Climate Risk Report. Members discussed the important role farming had within Leicestershire and the benefits high quality farming had in comparison to factory farming on the environment and the local economy.

iv)   As part of the Plan the Fund would produce a Taskforce on Climate Financial Disclosure(TCFD)  in Quarter 1. The Committee were pleased to note that the Fund was ahead of Government’s proposal to introduce compulsory disclosure of such information and that the Fund continued to keep an eye on proposed parliamentary legislation that would look to further influence how public and private pension funds responded to climate change ahead of the 26^th UN Climate Change Conference of the Parties (COP26). 

Members thanked officers for producing a comprehensive plan and looked forward to receiving future reports indicated within the Plan.

RESOLVED:

That the Responsible Investment Plan 2021 be approved

The Committee considered a report of the Director of Corporate Resources which was accompanied by appendices produced by the Fund’s Independent Investment Advisor and Investment Consultants Hymans Robertson. The report recommended a small number of changes to the Leicestershire Fund’s strategic investment benchmark and portfolio structure. A copy of the report and appendices marked ‘8’ are filed with these minutes.

The Committee welcomed Emma McCallum and Andy Green from Hymans Robertson (Hymans) to the meeting.

Leicestershire Pension Fund targeted a 5.9% investment return per annum. However, due to market conditions, in particular low interest rates and credit spreads the Fund’s investments were currently expected to earn 5.5% per annum. Members were assured that the Fund’s 2019 valuation of the funding level and deficit calculation was based upon an 80% likelihood of meetings the investment return, equivalent to 3.8% per annum. This meant that the revised 5.5% assumption was still comfortably ahead of the Fund’s target. Furthermore, falling inflation and the expected move from RPI to CPI was also expected to result in a small improvement in the funding level, however not materially. As a result, given current market circumstances, Hymans recommended no significant changes to the Fund’s asset strategy.

Arising from the discussion the following points were noted:-

i.       The switch from RPI to CPI post 2030 meant it would be possible to hedge the sensitivity of CPI pension increases with index-linked gilts, however, index-linked gilts remained expensive. As a result the Committee supported reduction of the strategic allocation to index-linked gilts, with reallocation to manage the currency hedge programme managed by Aegon.

ii.     Hymans assumed returns relative to expected CPI, assuming a 1% difference between expected RPI and CPI, which was consistent with the assumption made by the Fund’s Actuary in 2019. Overall the Fund and advisors did not believe the move from RPI to CPI would overly impact on the value of liability for the Fund, or assets with small holdings in index-linked gilts.

iii.    The Fund remained underweight in property, which was considered appropriate due to current market conditions and illiquidity. It was evident that Covid-19 had accelerated the transition away from the high-street in regard to commercial property, and it was difficult to predict its return with a 20% fall of its capital value, despite supermarkets strong position.

iv.   It was recommended that the Fund look at alternative property investments which covered purpose built rental accommodation blocks, as such property had proved most resilient during the crisis. The diversification away from commercial property holdings was considered positive by the Committee and it was agreed that there needed to be a focus on climate friendly sustainable properties. The Fund would consider such diversification via either LGPS Central or existing managers as opportunity arose.

v.               It was recommended that the Fund consider an allocation to Adams Street Partners secondaries fund. This was considered more suitable than Aberdeen Standard secondaries due to its earlier stage of the programme, which would result in more throughput for the Fund. Secondly, Adams Street would look at specific holdings that they were already aware of and hold bigger assets in a small number of funds which would provide better visibility of what was being invested in.

vi.             Hymans had considered different allocations per region for currency hedging. On balance it was felt the difference between strategic and longer-term analysis was not worth the complexity in the long term.  Furthermore, Aegon’s mandate allowed the manager to implement its judgement regarding weighting, for example as at end of December it had increased weighting to 60% rather than 50% on the dollar, due to consideration of  ...  view the full minutes text for item 8.

The next meeting of the Committee is scheduled to take place on 26 February 2021 at 9.30am.