Representatives
from Hymans Robertson (Hymans) the Fund’s investment advisor and Fulcrum Asset
Management will provide a presentation as part of this item.
Minutes:
The Chairman informed the meeting of a change to the running
order of the agenda, with Agenda Item 10 to be taken as the next substantive
item.
The Sub-Committee considered a report by the Director of
Corporate Resources which provided Members with information in respect of the
targeted return investments and proposed changes. The paper was supported by a
presentation from Hymans Robertson (Hymans) the Fund’s investment advisor and
Fulcrum Asset Management. A copy of the report is filed with these minutes
marked ‘Agenda Item 10’. The report was not for publication by virtue of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 set out the purpose of the
review which was undertaken as a result of recommendations approved at the 20
January 2023 Local Pension Committee, where three asset class reviews were
proposed alongside other recommendations which included the update to the
strategic asset allocation (SAA) that moved the targeted return target
allocation to 5% of total fund assets.
Hymans presented the scope of the review, which compared
three options for the targeted return allocation for the Fund, and options
comparison qualitative results. The options were outlined as:
·
Option 1, continue with the current managers,
and associated strategies;
·
Option 2, modify the current bench of
managers/strategies which would improve the robustness of the current
allocation, but could have significant governance implications;
·
Option 3, replace the current managers with the
LGPS Central fund, as currently specified.
In presenting their findings, Hymans concluded when
comparing Options 2 and 3, both options were better placed to meet investment
objectives of the portfolio compared to Option 1. Hymans summarised Option 2 as
being more attractive in terms of improved complexity, transparency and
liquidity risk, as well as RI credentials compared to other options, and
provided recommendations from their findings.
In response to a question on the costs of investment if
trying to exit from (current targeted return managers) them, it was
acknowledged that the Fund would always look to minimise exit levies.
[At this point representatives from Fulcrum joined the
meeting]
Fulcrum representatives delivered a presentation which
provided an introduction to Fulcrum Diversified Core Absolute Return (DCAR),
the focus of which was to provide an alternative return stream, providing
genuine diversification at times when traditional portfolios were failing. The
company had adopted a macro approach that helped long-term investors sustainably
build wealth, and to build robust portfolios that could stand the test of
various macro environments.
The Sub-Committee heard of the objectives of an Absolute
Return Strategy to generate returns, provide downside protection and which were
complementary to client portfolios. The Sub-Committee questioned Fulcrum on the
fund feature to target inflation + 3-5% per annum over five-year periods,
investing with an absolute return mindset, and how it could be controlled.
Members were assured it could be controlled over shorter terms, but that over
longer-term the intrinsic risk would not alter if inflation were high.
The Sub-Committee were assured that Fulcrum took its
stewardship responsibilities seriously and had a strong level of support for
environmental and social resolutions, and had supported more proposals than
many of the world’s largest asset managers. It was further noted that the RI
policy aligned with the objectives of DCAR.
[At this point representatives from Fulcrum left the
meeting]
The Sub-Committee discussed the recommendation to the
report. They sought further clarity the fee rates and asked for an amendment to
recommendation c) in the report.
[At this point representatives from Fulcrum re-joined the
meeting]
Fulcrum representatives were informed of, and agreed the
suggested amendment to recommendation c) to the report that fees would be
negotiated via the Director of Corporate Resources.
RESOLVED:
That the Investment Sub-Committee approve:
a.
The Director of Corporate Resources be authorised
to take the necessary action in order for the Fund to disinvest the targeted
return investments during 2023/24, as outlined in preferred Option 2 in the
report.
b.
That an investment increasing to 3% of total fund
assets be made to the existing Ruffer mandate over
2023/24.
c.
That an investment totalling 2% of total fund
assets be made to the new Fulcrum diversified core absolute return fund over
2023/24, subject to negotiation of fees via the Director of Corporate
Resources.
The meeting took a short break at 12:05pm and reconvened at 12:11pm.