Agenda item

The Sub-Committee considered a report of the Director of Corporate Resources which provided an update on the cash holding of the Leicestershire County Council Pension Fund (Fund) and the plans for its deployment against the strategic asset allocation (SAA). The report provide background regarding commitments to three infrastructure investments. A copy of the report is filed with these minutes marked ‘Agenda Item 9’.

The Director reported on the positive cashflow nature of the Fund, the new SAA approved at the Local Pension Committee meeting in January 2023 and its comparison to the SAA of 2022, and three primary areas to address to align the Fund to the SAA.

Under Plans for 2023/24, it was reported there were not many ISC changes as there had not been any approvals to date, but in ‘commitments approved’ changes were reported at infrastructure (£239million), global credit (£300million) and property (£120million), to close the underweight position of the income class.

The proposed Hymans Robertson framework had assisted in the decision making of fund investing, based on risk and geography. In considering the framework and following discussions with managers, a list of three commitments had been proposed, as outlined in the report, totalling £100million. £30million would be held back until further reassessment later in 2023/24.

Arising from queries, the following points were noted:

       i.          Cash balances were collected each night and held within money market funds. It had at one time not been useful to hold cash as there was no allocation to cash within the SAA and rates had been near to zero, which was no longer the case as rates had risen.

      ii.          When considering Hyman’s targets by geography, Members queried that the targets did not total 100% (total 95% based on mid points used from the Hymans framework). Members were informed it was acceptable to be within the ranges of the targets, and that actual allocations could change within the UK, overseas and advanced emerging geographies but would be managed within the ranges from the framework.

    iii.          It was acknowledged that every decision made took into account all risks to be considered, including climate and the Fund’s Net Zero Climate Strategy.

    iv.          A Member queried the SAA in relation to the Net Zero Climate Strategy, the latter of which was approved after the SAA. It was reported the SAA had been written with the assumption that the NZCS would be approved, and Hymans had built in as many options within the SAA as possible. Hymans went on further to state that the way in which each of the individual asset classes was implemented had a bigger impact on climate risk than the SAA itself, and listed in the equity review was a proposed reduction in emerging markets as agreed at the SAA which was helpful in terms of climate risk, and there would, over time, be examples of the way the NZCS was implemented.

     v.          In response to a query about £5million of investment management expenses being paid directly by the Fund, if there was information on how those investments were divested. It was reported that they were not divested as such, but some fees were billed by the Manager (to the pension Fund), and for others fees were deducted (directly) from the Fund. 

    vi.          In response to a query as to how the balance of fees was funded, it was noted that some were funded from £5million as outlined, and some were paid by the manager within the fund, without the need to divest assets to pay fees.

RESOLVED:

That the Investment Sub-Committee approve:

a.     An additional £35m commitment to the LGPS Central Core / core plus infrastructure fund bringing the total commitment to £135m

b.     A $24m commitment to the JPM IIF fund

c.     A $54m commitment to the Quinbrook Net Zero Power Fund split equally between the main fund and co-investment fund

The infrastructure commitments would be funded from existing cash as they were called by the managers, and if additional cash was needed, divestments from overweight areas versus the SAA would be considered alongside other changes to the portfolio which were planned.