Minutes:
The Committee considered an exempt report of the Director of
Corporate Resources concerning the annual review of the Fund’s Asset Strategy and
structure. A copy of the report marked ‘Agenda Item 13’ is filed with these
minutes.
The report was not for publication by virtue of paragraphs 3
and 10 of Schedule 12A of the Local Government Act 1972.
Representatives from the Fund’s Investment Advisor Hymans
Robertson provided a Market Update to the Committee and highlighted that returns had mostly returned to normal
pre-pandemic level by the end of 2021.
Following the presentation, the following points arose:
i.
The long-term impact of the United Kingdom’s
Exit from the European Union remained unclear, which was reflected in the
activity of the markets such as UK Equity which had seen some strain, as
markets did not react well to uncertainty.
ii.
Returns the Fund had generated were comfortably
ahead of the required return as assumed by the Fund’s Actuary at the valuation
in 2019.
iii.
The Director clarified that it was normal to
take more risk than strictly required to generate the projected returns by the
Actuary. Some excess risk was prudent to provide downside protection, and
balance employer contributions. The Fund would consider its targets as part of
the 2022 valuation exercise, and any material changes would be considered as
part of the 2023 asset strategy review, however no significant changes were expected.
iv.
The Fund already made positive investments in
relation to climate change, such as its investment in timber with Timberland,
the assets of which were low and potentially negative regarding carbon
emissions within the infrastructure asset class.
v.
More broadly within Infrastructure it was
evident there was key reliance on concrete and steel, a significant carbon
emitter. Nevertheless, when looking at the larger picture the resources were
necessary in the creation of the renewable energy sector in the development of
onshore and offshore wind farms and solar farms. Such developments created
substantial carbon in construction, however, over its 30
or 40 year lifespan it was extremely beneficial regarding decarbonisation.
The focus of the Fund would be shaped by the Fund’s Climate strategy where
possible in considering such factors.
vi.
In relation to a question regarding the
Fund’s willingness to invest in social
infrastructure in the locality with the aim of helping local authorities, the
economy and community. The Director informed the Committee that the Fund was
limited to local investment 5% of its total Fund, and that there were several
issues which restricted it due to conflicts of interest, and the Fund’s
inability to use social good factors to reduce financial return due to its
fiduciary duty to employers and scheme members. Furthermore, the Fund would be
required to develop a bespoke arrangement with an Investment Manager to
facilitate such investments which would be higher cost compared to existing
investments.
vii.
Members noted that the Fund’s Investment
Managers tended to have broad global areas they invested in, and that they had
an obligation to consider all opportunities if it is the best investment in the
Fund’s interest. If that was in the local area, then there would not be
anything stopping the Investment Manager committing capital to that
opportunity.
RESOLVED:
a)
That
the outcome of the review on the Annual Asset Strategy be noted.
b)
That
the proposal to maintain the allocation as agreed on 22 January 2021, be
approved.
c)
That
the Director of Corporate Resources review the following asset classes and
submit the outcomes to future meetings of the Committee or Investment
Subcommittee.
i. Listed Equity
ii. Targeted Return
iii. Infrastructure
iv. Property
v. Distressed Debt
d)
That
the Investment Subcommittee be asked to consider over the course of 2022 the
changes necessary to meet the strategic asset allocation, the outcome of any
review, subject to c), and the relevant product launches by LGPS Central and
other investment managers.
e)
That
the Director of Corporate Resources, following consultation with the Chairman
of the Local Pension Committee, be authorised to utilise the Aegon short-dated
investment grade bond fund to hold surplus cash awaiting drawdown to
closed-ended funds, based on cash flow forecasts.
f)
That it
be noted that the intention of the Fund is to develop and document its
rebalancing principals as part of the Investment Strategy Statement refresh.