Representatives from LGPS Central
will provide a presentation as part of this item. Copies of the slides are
attached.
Minutes:
The Subcommittee considered a report by the Director of Corporate Resources which provided members with information in respect of the private debt portfolio review and proposed investments. A copy of the report is filed with these minutes marked ‘9’. The report was not for publication by virtue of Paragraphs 3 and 10 of Part 1 of Schedule 12(A) of the Local Government Act 1972
Representatives from Hymans Robertson set out their review of the Fund’s portfolio, and recommendations that had arisen.
[At this point representatives from LGPS Central joined the meeting]
Representatives from LGPS Central presented to the Subcommittee on the proposed investment in their Low Return and Real Assets sleeves.
Arising from the discussion the following points were noted:-
· The LGPS Central real assets product targeted a net return of between 3.5% to 5.0% over the term of the product. Since the target was set interest rates had significantly risen and there was therefore scope to increase the target net return, whilst noting that a long term view would always be taken. The key objective of securing return without excessive risk would remain.
· The real assets product focused on real estate (property) and infrastructure debts and a diverse investment would be secured by investing in a variety of managers with a track record of delivering returns.
· LGPS Central would prioritise the securing of senior debt over less secure forms of debt such as mezzanine debt.
· As part of LGPS Central’s responsible investment approach, a sustainability linked loan would grant the borrower a small reduction in interest margin if it met certain Environmental, Social and Governance KPIs (ESG). In some instances, the interest margin may increase if the borrower fails to meet ESG KPIs. The KPIs would vary depending on the company but could include a reduction of carbon emissions and increasing the diversity of the company’s board or employee base. A separate team within LGPS Central reviewed each investment in relation to responsible investment and made recommendations to the Central’s Investment Committee ahead of any investment being made.
[At this point representatives from LGPS Central left the meeting]
The Subcommittee supported the review of the Fund’s infrastructure portfolio, and recommendations that had arisen.
RESOLVED:
a) That a commitment of £140m to the LGPS Central Low Return Sleeve be approved;
b) That a commitment of £80m to the LGPS Central Real Assets Sleeve be approved subject to officer discussion regarding the target return and investment strategy changes for the fund reflecting current market conditions;
c) That a commitment of up to £60m to Partners MAC 7 Vintage be approved, subject to the Leicestershire Fund being no more than 20% of total MAC 7 commitments, with any unused commitments up to the maximum £60m to be taken into account for the 2024 private debt;
d) That the following commitments be made in 2023/2024:
i. Subject to a minimum fund raise by Central of £900m an additional £180m to be committed to the new LGPS Central Low Return Sleeve. If the current Sleeve’s end date is extended, then this minimum fund raise of £900m will not apply given the size of the existing commitments;
ii. Up to a total of £100m commitment to the LGPS Central Real Assets sleeve subject to the Leicestershire Fund being a maximum of 20% of the total sleeve. Any unused commitment up to the maximum £100m to be taken into account for the 2024 private debt proposal.
e) That the commitments set out above be funded from existing cash resources where possible and that the Director of Corporate Resources, following consultation with the Chairman of the Local Pension Committee, be authorised to divest overweight positions back to the Strategic Asset Allocation target to fund any remaining commitments.