Venue: Sparkenhoe Committee Room, County Hall, Glenfield. View directions
Contact: Mrs A. Smith (Tel. 0116 305 2583) Email: angie.smith@leics.gov.uk
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Minutes of the meeting held on 19 April 2023 PDF 141 KB Minutes: The minutes of the meeting held on 19 April 2023 were taken as read, confirmed and signed. |
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Question Time. Minutes: The Chief Executive reported that no questions had been received under Standing Order 35. |
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Questions asked by members under Standing Order 7(3) and 7(5). Minutes: The Chief Executive reported that no questions had been received under Standing Order 7(3) and 7(5). |
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To advise of any other items which the Chairman has decided to take as urgent elsewhere on the agenda. Minutes: There were no urgent items for consideration. |
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Declarations of interest in respect of items on the agenda. Minutes: 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. |
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Aegon Asset Management - Index Linked Bonds Update PDF 124 KB Additional documents: Minutes: The Sub-Committee considered a report of the Director of
Corporate Resources the purpose of which was to provide information on the Leicestershire
Pension Fund (Fund) investments held with Aegon Asset Management (Aegon) and
the performance of mandates held with them. A copy of the report marked ‘Agenda Item 6’ is
filed with these minutes. Mr James Lynch and Mr
Jordan Irvine from Aegon were in attendance at the meeting for this item, and supplemented the report with a presentation which
is also filed with these minutes. Arising from discussions the following points arose:
i.
A Member questioned who set the mandate
parameters for investments made. Aegon stated that the original mandate had
been set in 2013 and had been far wider ranging and more global in nature with
more investment overseas. In 2016 Aegon and the County Council had agreed to
move to a more restricted mandate.
ii.
When presenting information in the UK index
linked Fund performance, Aegon explained a high level of returns had been
reached at the end of 2021 / beginning 2022, following which there had been a
large draw down on index linked bonds. It was noted that, as a long-duration
asset, it was more sensitive to changes in interest rates, and though
performance had dipped providing a negative return the loss of capital would
come back over time. Furthermore, if the value of the index linked gilts fell,
so did the Fund’s liabilities, and when interest rates fell, the value of index
linked gilts would rise along with the Fund’s liabilities.
iii.
With regards to the cost of pensions
increasing, when actuaries calculated the current value of future liabilities,
they had to convert the cost of future liabilities to present day value by
discounting future liabilities at an interest rate related to yield on index
linked gilts. With a higher yield, the ability to meet those liabilities was
enhanced, and was checked every three years, with a mid-point high level check.
Information was provided in an annual report presented to the Local Pension
Committee.
iv.
A Member voiced concern that there would not be
an upturn in the economy any time soon, and that the country was not
manufacturing or exporting enough and had lost the ability to trade
successfully with the world. Aegon confirmed that the assumption around
manufacturing decline was a correct one. However, interestingly post-Covid19
other areas of the world were onshoring manufacturing (particularly the USA) to
help the manufacturing industry and also for security
reasons after experiencing difficulties in accessing goods throughout the
Covid19 pandemic. The UK’s focus
currently remained in the service industry. RESOLVED: That the presentation and report be noted. Mr Lynch and Mr Irvine
from Aegon left the meeting at this point. |
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Cash Update and Amendment of Previous Recommendation to Private Credit Investments PDF 331 KB Additional documents: Minutes: The Sub-Committee considered a report of the Director of
Corporate Resources the purpose of which was to provide an update on the cash
holding of the Leicestershire County Council Pension Fund (Fund) and the plan
for its deployment against the Strategic Asset Allocation (SAA). The report
also sought approval to remove the limits previously approved by the
Sub-Committee in October 2022 regarding commitments to LGPS Central in 2023/24.
A copy of
the report marked ‘Agenda Item 7’ is filed with these minutes. In presenting the report, the Director highlighted an error at page 36, Pt. 12 of the report; the heading of column
three of the table should read ‘2022 SAA’, and of column four should read ‘2023
SAA’. Mr Philip
Pearson from Hymans Robertson was in attendance at the meeting for this item. Arising from discussions the following points arose: i.
When presenting information on the Private Debt
recommendations change, assurance had been given by advisers that disapplying
the 20% limit would not put the Fund at risk, and that no additional specifics
had been received from Hymans other than that they were supportive of waiving
the 20% limit based on the assurances of LGPS Central. ii.
A Member queried if the Fund was discouraging
investment in fossil fuels. It was explained that inroads were being made into
the targets set and contained within the Funds Net Zero Climate Strategy
approved by the Local Pension Committee in March 2023. Members recalled that the Investment
Sub-Committee at its meeting in April 2023, had approved changes to the listed
equity portfolio which would further reduce carbon footprint in the Fund’s
investments. It was further noted that LGPS Central looked at a Managers’
targets prior to appointing new managers. RESOLVED: That the Fund proceed to commit in 2023/24: a.
£180m to the new LGPS Central Low Return Sleeve; and
b.
£100m to the LGPS Central Real Assets Sleeve as approved by the Investment Sub-Committee
(ISC) on 12 October 2022, but that the 20% limit on these commitments also
previously agreed by the ISC no longer be applied for the reasons outlined
within the report.
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Additional documents:
Minutes: The Sub-Committee considered a report of the Director of
Corporate Resources the purpose of which was to provide information in respect
of the protection assets group portfolio review and proposed changes to
investments. A copy of the report marked ‘Agenda Item 8’ is filed with these minutes. Mr Philip
Pearson from Hymans Robertson (Hymans) was in attendance at the meeting for
this item and supplemented the report with a presentation which is also filed
with these minutes. Arising from discussion the following
points arose:
i.
In presenting key metrics during the
presentation, it was noted that funding was not sensitive to long-term
inflation, as all asset classes worked together to provide protection
throughout the portfolio.
ii.
There was sensitivity to long-term real yields,
in particular if falling below -2%. Members were reassured that the likelihood
was they would be fully funded above 2%, and that the charts included within
the presentation were displaying extreme scenarios.
iii.
When considering the recommendation to increase
the allocation to investment grade corporate bonds (IGC) to equal weights,
officers queried if the +/-1% linked to overall investment outcomes would
deliver a better return as a result. Hymans advised that modelling had
suggested that the trade-off was best set at equal weight against the two asset
classes. It was believed that the equal
combination had better long-term outcomes, and that the additional return from investing in IGC would outweigh the
slightly reduced protection from index-linked bonds (ILB) which gave some protection against inflation.
iv.
It was noted some current cash and currency
(FX) hedging arrangements, there were inconsistencies with some investments
unhedged, some with partial exposure, and some fully hedged. Hymans advised
that there was scope to apply the current policy more consistently. RESOLVED: That the Investment Sub-Committee approve the following
changes to protection assets and other impacted mandates and that the Director of
Corporate Resources be authorised to take the necessary action for the Fund to
manage the changes as outlined below: a.
Implement a change to the ILB allocation to
3.5% and for IGC 3.75% of total Fund assets. However, to defer the reallocation
of capital between ILB and IGC until Hymans have concluded their outlook on
both asset classes. b.
Engage with Aegon regarding the ILB mandate and
their ability to enhance and protect returns by investing in overseas bonds at
the appropriate times. c.
Consider the changes to the FX hedging
arrangements as described at points 37-44 of this paper. d.
At the next SAA review (planned for January
2024) the Fund reviews the target allocation to protection assets and explore
further the inclusion of alternative protection assets. Mr Pearson left the meeting at this point. |
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Date of Next Meeting Minutes: It was noted that the next meeting would be held on 11 October 2023, at 1.30pm. |
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Exclusion of the Press and Public. Minutes: 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 ground that the involve the likely disclosure of exempt information as defined in Part 1 of Schedule 12(A) of the Act. |
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Investment Management Fee Savings Minutes: The Committee considered an exempt report by the Director of
Corporate Resources, which provided information in respect of the investment
management fee savings made for the benefit of the Leicestershire County
Council Pension Fund (Fund). A copy of the report marked ‘Agenda Item 11’ is
filed with these minutes. The report was not for publication by virtue of
paragraphs 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972. Officers informed the meeting there would be a decision on
where best to invest the management fee savings. Members congratulated officers
on the discussions that had resulted in the savings. RESOLVED: That the report be noted. |