Agenda and minutes

That Mr. T. Barkley CC be appointed Chairman of the Investment Subcommittee for the period ending with the date of the Annual Council meeting in May 2022. 

The minutes of the meeting held on 31 March were taken as read, confirmed and signed. 

The Chief Executive reported that no questions had been received under Standing Order 35.

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. No declarations were made.

With the agreement of the Committee the Chairman changed the order of business to take Item 7 concerning the Strategic Asset Allocation Update and Cash Deployment report, as the last item of business.

 

The Subcommittee considered a report by the Director of Corporate Resources which provided members with information in respect of a recommended investment into LGPS Central Private Debt and Partners Private Debt Product. A copy of the report marked ’8’ is filed with these minutes.

 

RESOLVED:

That the report be noted.

 

The Subcommittee considered a report by the Director of Corporate Resources which provided members with information in respect of a recommended investment in the LGPS Central Infrastructure Fund. A copy of the report marked ’9’ is filed with these minutes.

 

RESOLVED:

That the report be noted.

It was noted that the next meeting would be held on 13 October 2021 at 10am.

 

RESOLVED

 

That under Section 100(A) of the Local Government Act 1972 the public be

excluded from the meeting for the remaining items of business on the grounds

that they involve the likely disclosure of exempt information as defined in Part 1

of Schedule 12(A) of the Act.

 

 

The Subcommittee considered a briefing paper produced by the Fund’s

investment advisors, Hymans Robertson, which was followed by questions from

members. A copy of the briefing note is filed with these minutes marked ‘13’. The note was not for publication by virtue of Paragraphs 3 and 10 of Part 1 of

Schedule 12(A) of the Local Government Act 1972.

 

Arising from the discussion the following points arose:-

 

         i.             Hymans Robertson advised the Committee that they felt confident LGPS Central was of sufficient size and experience to manage the strategy set out. Furthermore, they were content with Central’s investment philosophy and robust manager selection process, which gave meaningful consideration of responsible investment factors.

 

        ii.             The design and investment strategy for LGPS Central’s Private Debt Product was in line with Hymans and Leicestershire’s expectation as it sought appropriate diversification across geographies and sectors.

 

       iii.             Regarding the proposed investment in Partners Multi Asset Credit (MAC) fund, Members noted that the Fund had invested in the previous four iterations of the MAC fund and that the process remained largely unchanged from what had previously proven successful.  Members noted that Partners had the resource and credentials to manage the private lending strategy on a global basis and provided an efficient and effective governance process.

 

      iv.             The Subcommittee noted that both proposed investments presented favourable costs to the Fund. LGPS Central due to the benefits of pooling, and Partners from the long successful partnership it held with Leicestershire Pension Fund.

 

        v.             The proportionate split between LGPS Central and Partners was dependant on the funding achieved by the LGPS Centrals sub-fund to ensure it did not overcommit in comparison to other partner funds. As a result, it was recommended authorisation be given to the Director of Corporate Resources, in consultation with the Chairman of the Investment Subcommittee, to invest in the two funds as set out within the report.

 

 

[At this stage of the meeting representatives from LGPS Central joined the meeting]

 

The Subcommittee received a presentation by representatives from LGPS Central. A copy of the presentation is also filed with these minutes. Arising from the question and answers the following points were noted:-

 

      i.   LGPS Central detailed the robust strategy and the process they were undertaking in the appointment of managers which the Subcommittee supported.

 

     ii.   Members queried how LGPS Central would monitor the Environmental, Social and Governance (ESG) of underlying managers, an issue especially relevant for Private Debt funds. Members were assured that Central would only invest in companies that reported on ESG factors and it was clear that the push for that across the investment world was resulting in change in companies who did not previously report on such matters.

 

    iii.   Members noted that the margins within lending markets had reduced, Central felt the margin was still sufficient to receive return and higher yield from listed credit by the time a underlying manager deployed the credit.

 

   iv.   The number of underlying managers Central sought to appoint was dependant on the funding level reached, this was to ensure funding was not spread between managers too thinly and there was a balance between fees and diversification.

 

[At this stage representatives from LGPS Central withdrew from the meeting]

 

RESOLVED:

 

(a)  That a combined investment totalling a maximum of £160million in the LGPS Central Private Debt 2021 low-return vintage and Partners Group Multi Asset Credit be approved.

 

(b)  That the Director of Corporate Resources, following consultation with the Chairman of the Investment Subcommittee, be authorised to invest in the two funds as detailed in paragraph 46 to 49.

 

The Subcommittee considered a briefing paper produced by the Fund’s

investment advisors, Hymans Robertson, which was followed by questions from

members. A copy of the briefing note is filed with these minutes marked ‘13’. The note was not for publication by virtue of Paragraphs 3 and 10 of Part 1 of

Schedule 12(A) of the Local Government Act 1972.

 

Arising from the discussion the following points were noted:-

 

      i.        The Fund held 7.4% in infrastructure against a target allocation of 9.75%. Officers anticipated an additional £90million was required to address the shortcoming, which a £70million commitment to invest in Central’s core/core-plus would help address.

 

    ii.        Hymans set out the complexity of the core/core-plus fund in comparison to other funds Leicestershire invested in, due to the nature of the fund.  Hymans were confident that Central’s strong manager selection process would help ensure positive long-term returns.

 

[At this stage of the meeting representatives from LGPS Central joined the meeting]

 

The Subcommittee received a presentation by representatives from LGPS Central. A copy of the presentation is also filed with these minutes. Arising from the discussion the following points were noted:-

 

   iii.        It was considered most appropriate within the core/core-plus sleeve to retain a stable cash flow through proven technologies, and Members recognised the sustainability debate around hydrogen and electric was yet unresolved.

 

   iv.        Capital raising projections were promising and it was expected partner funds would start to see real benefits from pooling after the first few years of the sub-fund. The savings found would be as a result of aggregation, first close benefit and negotiation as the sub-fund progressed.

 

    v.        The commitment made by partner funds would be shared among all managers in the core/core-plus sleeve on a prorated basis, irrespective of when they committed to the sleeve as a result of the open-ended nature of the fund. Members noted this was different to close-ended vintages that Leicestershire normally invested in.

 

   vi.        Commitments would be made on a quarterly basis and not be drawn until required and called down on a prorated basis. Once committed partner funds would gain exposure to their prorated share of all underlying investments, including any existing investments. Distributions from income and return of capital would also be made on a quarterly basis rather than re-invested.

 

  vii.        While the structure of the fund allowed for it to be bought and sold at any time, as the sub-fund would invest in inherently illiquid investments, such as closed-end primary funds, redemption rights were limited by Central to avoid any asset-liability mismatch and to protect the sub-fund and the interests of partner funds invested in it. However, Members were assured that significant redemption was considered unlikely given partner funds were long-term investors.

 

 viii.        There was an equalisation mechanism in place that would repay earlier investors for fronting initial capital to ensure they were not worse off in comparison to later investors.

 

 

[At this stage representatives from LGPS Central withdrew from the meeting]

 

 

RESOLVED:

 

a)    That the supplementary information provided by Hymans Robertson and the presentation by LGPS Central be noted.

 

b)    That a £70million commitment to invest into the LGPS Central core/core-plus infrastructure fund, subject to paragraphs 39 to 40 be approved.

 

 

 

[The meeting moved back into Public Session]

 

Cllr. A. Clarke left the meeting at 11.30am, making the meeting inquorate. The remaining Members decided to continue considering the remaining item on the agenda to note and comment as considered appropriate.

 

 

Members present considered a report by the Director of Corporate Resources

which provided members with an update on the Fund’s Strategic Asset Allocation and Cash Deployment plans. A copy of the report marked ’7’ is filed with these minutes.

 

The Director informed Members of the positive cashflow nature of the Fund it held £220million in cash at the end of June 2021.The position of the Fund was due to payments to pensioners and dependants being lower than pension contributions received, as well as a number of closed end funds returning capital to the Fund.   As a result, the Fund needed to continue to reinvest its funds to ensure realignment with the Strategic Asset Allocation agreed in January 2021.

 

Members noted that the Subcommittee’s earlier decisions would help offset that cash, however given the time it took to call money and the continuing return of capital from the Fund’s existing managers. the Fund would need to continually assess future investments needed.

 

Members welcomed the report and plan to invest cash held, recognising the positive cashflow nature of the Leicestershire Fund noting it allowed the Fund to make more liquid decisions, compared to a cashflow negative funds.

 

The Members present noted the report.