Agenda item

Representatives from DTZ Investors will be in attendence to deliver a presentation.

The Subcommittee considered a report by the Director of Corporate Resources which provided members with information in respect of cash deployment plans and an update on the strategic asset allocation. A copy of the report is filed with these minutes marked ‘Agenda Item 7‘

The Subcommittee noted that as at 31 March 2022 the Fund held £116million in cash, 2.0% of the Fund’s total assets as a result of the Fund’s positive cashflow nature and previous investment returns. The Fund aimed to keep its cash holding as low as possible, and keep the Fund fully invested in line with the Strategic Asset Allocation, to that end the Fund would continue to deploy its funds to underweight areas.

Arising from queries raised the following points were noted:-

         i.   The lag of committed funds being invested varied between asset classes; for example, Private Equity commitments could take up to four years to be fully invested.  Members were assured that where a manager did not deploy capital in the specified investment period, capital would be returned to the Fund. Where the Fund felt uncomfortable within the investment period there was little scope to act, unless the Manager breached its mandate restrictions and/or contractual terms. Members noted it was for that reason it was key to undertake due diligence on potential managers, especially in relation to closed-ended funds.

        ii.   The mandate characteristics for LGPS Central’s UK direct property mandate, for which DTZ was appointed, included a restriction that the void rate should not exceed 10%. Given DTZ could not prevent tenants from not renewing their lease, the restriction signalled that the manager needed to act as quickly as possible to reduce the void rate, where it occurred.   

[At this point representatives from DTZ Investors and LGPS Central joined the meeting]

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

       iii.    DTZ Investors had set a Net Zero Carbon date for its portfolio of 2040, and integrated responsible investment (RI) principals throughout its culture and asset improvement plans. It would continue to work with funds on delivering an effective RI programme.

      iv.    In response to a question on how tenants engaged DTZ shared positive examples such as the Printworks in Manchester which following its asset improvement plan won an international Green Apple Award for businesses that demonstrated environmental best practice. In other cases, it was recognised tenants could be slower engage, however once tenants understood the value that could be gained, they welcomed and collaborated with DTZ as a responsible landlord.

        v.    DTZ set out their different approaches to asset improvement plans. For warehouse and industrial sites, DTZ would request energy, water and waste data and then identify changes or improvements that could be made, such as on-site renewables, transport plans and increasing energy efficiency ratings. Other improvements aimed at positive social change could involve the addition of green space and benches into an industrial estate.

      vi.    DTZ explained the four base risks it considered before acquisition of an asset namely, location, lease, credit, and asset obsolescence. Members understood it was vital to understand assets prior to acquisition and be mindful of what risk compounded another.

     vii.   DTZ focused on sustainable locations with a view to hold property for the long term, where there was deep occupational demand and/or high alternative use value, among other key characteristics. Despite such properties being in high demand DTZ took a measured approach to acquisition and would not pay excessively.

    viii.    A member queried DTZ in relation to the UK Government’s Levelling Up ambitions, and other public investment programmes, and how that might affect future investment. DTZ informed the Subcommittee that it focused on drivers of long-term sustainable demand and aligned itself to such programmes where its values and risk profile was satisfied.

      ix.    DTZ looked to avoid bespoke specialist warehouse deals, as they felt it had the risk of becoming an obsolescent asset if an operator chose not to renew its lease. In such cases it was difficult to gain new tenants for extremely large, multi-story warehouses, that were often in a peripheral location.

        x.    DTZ’s view on warehouse longevity was that for bespoke buildings it should last at least as long as the lease. Members noted DTZ held warehouse assets that were over 50 years old as through its improvement plans, new roofs and double glazing could keep assets going indefinitely. It was recognised with new legislation old buildings needed significant capital expenditure to meet new regulations. Depending on the value differential between age and specification a warehouse originally built to, decided whether improvements could be made, or more comprehensive redevelopment was needed.

RESOLVED:

That the report and presentation provided by DTZ Investors be noted.

[At this point representatives from DTZ Investors and LGPS Central left the room]