Agenda item

The Committee considered a report from the Director of Corporate Resources which provided an overview of the Fund’s current strategic investment allocation activity in year and a summary of the proposed future allocation. A copy of the report marked “Agenda Item 7” is filed with these minutes.

Arising from the discussion the following points were noted:-

i)     Since the last review of the strategy in January 2019 the Fund had transferred its active listed global and emerging markets equities to LGPS Central’s (Central) equivalent products; and entered into an agreement with Central to provide advisory services for its Property, Targeted Return and Emerging Market Debt asset classes.

ii)    Over the previous year Central had developed a more formal approach to product development to improve accountability and delivery through enhanced communication and clarification of responsibility between Central and each partner fund. This enabled Central to focus its resources on asset classes that partner funds were most interested in.

iii)   The Director of Corporate Resources acknowledged that pooling had been slower than initially anticipated, resultant from staff turnover and the complexities involved with pooling across the partner authorities. Section 151 officers across the partner funds had recognised these issues and had set up meetings to ensure each authority was aligned in their approach to ensure collective working. Ultimately the savings originally presented prior to the pool being established were reliant on each fund transferring the majority of its assets to LGPS Central.

iv)  Members noted that Government had not yet produced statutory guidance following the consultation in January 2019 regarding LGPS asset pooling. It was expected, considering the direction of the consultation, that upcoming guidance would stipulate future investments would need to be attained through pooling, not via the fund’s own individual manager appointments. In the meantime, the Fund would keep a consideration of its allocations with a view to invest in Central as products were developed. It was considered most cost effective to utilise Central’s services as much as it could, due to its cost of running.

v)    Virtually all of the Fund’s equity asset classes were pooled through Central’s investment services, advisory services or Legal and General Investment Management (LGIM) passive management. LGIM’s services were deemed cost-effective and it was not proposed to move the mandate to Central as it would be unlikely to generate a cost saving.

vi)  The Fund had previously committed £10million to LGPS Central’s Private Equity Fund, however following the loss of the Investment Director no product was launched for 2019/20. The Investment Subcommittee, at its meeting on 16 October 2019, agreed to commit £30million to Adams Street Partners to maintain the Fund’s allocation to Private Equity.

vii)     The Investment Subcommittee had also agreed at its meeting on 16 October 2019 to commit £100million to Partners Group Fund V in the absence of a developed Private Credit product from Central. The Director reiterated that any future investment in Private Credit would also be dependent on government guidance. The Director informed the Committee that Private Credit was a relatively new investment line that had arisen following the banking crises, and while it had performed well for the Fund since its inception it was unlikely that opportunity for yield would always be there.

viii)Central were providing the advisory services for the Fund’s Property Assets which made up 9% of the Fund’s total assets as at 30 September 2019. Work was ongoing by Central to look at the potential for partner funds to transfer existing assets into a Property Asset Fund. Any potential costs to the fund’s would be considered as part of product development and a business case. Like all products launched it would need approval of all partner funds. Property made up a significant portion of the proposed £250million saving that had been stated in the original business case for LGPS Central and if other partners were unable to engage in the product then the savings might need to be reprofiled.

ix)  The Fund’s Property holding was focused on holdings in England as experience in overseas property markets had been volatile. The Fund had other asset classes that focused on the overseas markets.

x)    The Fund had expressed interest in LGPS Central developing an Infrastructure product however there had originally been limited appetite with partners. Another partner fund has now indicated a potential interest and a product may now be developed later in 2020.

xi)  Progress had been made with Central’s Emerging Market Debt fund, and subsequent to a successful tendering exercise it was hoped to be launched early summer 2020.

xii) Plans to develop a Multi Asset Credit fund were in early stages and would progress subject to sufficient interest from other partner funds.

xiii)    Discussions were ongoing with Central regarding a Targeted Return fund, however it seemed like there was limited appetite among the other fund’s.

xiv)   The Fund’s current investment with Timberland was close-ended and investment would be returned to the Fund as it matured. Future investment in Timberland would depend on the statutory guidance produced by government and the time frame for allowing investment outside of pooling.

RESOLVED:

That the report be noted.