Agenda item

The Committee considered a report of the Director of Corporate Resources, which provided an update on the public markets investments in the Fund holds with LGPS Central (Central). A copy of the report marked ‘Agenda Item 6’ is filed with these minutes.

The Chairman welcomed Mr. Louis-Paul Hill and Mr. Fuad Ahmed from Central, who delivered a presentation as part of this item.

Arising from discussion, the following points were made:

i.          A Member asked about progress with pooling in line with Government’s deadline by 31 March 2026 and asked whether the remaining days were sufficient to meet the deadline, if there were difficulties affecting final completion, and the nature of those challenges if any. Officers explained that a significant number of legal agreements needed to be agreed between the existing shareholders and the new participants. It was confirmed that the agreements were close to being finalised for signing and sealing, noting that the project was operating very close to the deadline, but that completion was very close.

ii.          A Member queried exchange rates and the management of currency risk. Officers explained that currency hedging operated as an overlay, mainly on equities. Foreign exchange movements might result in gains or losses, though some might reverse over the long term. Around 30% of foreign exchange exposure was hedged through Aegon which could offset losses, with responsibility for managing transferring to Central in due course.

iii.          A Member questioned whether the pooling of significant amounts of money of other funds would become an increasing problem without sufficient opportunities for investment. Officers responded that the joining funds were already investing in areas such as infrastructure, property and private credit, and it would not result in additional money chasing the same opportunities. In addition, the increased scale was seen to be advantageous, with the ability to commit larger investment amounts and secure larger mandates with managers, leading to stronger negotiation on fees for all participants and improved outcomes.

iv.          A Member commented that the diversification of underlying assets meant that they would perform differently, for example, infrastructure and private equity, and questioned whether portfolio‑wide risks, such as, leverage in private equity, could amplify losses during a credit crunch. Central responded that while all assets were exposed to some risk, such as economic shocks, infrastructure remained relatively stable due to secure long‑term cash flows.

v.          Central confirmed that there was no leverage in property, but with private credit it was leveraged, with any limited use of leverage confined to underlying companies and carefully assessed, high‑quality assets rather than at fund level.

vi.          Capital drawdowns were noted to vary by asset class, with open‑ended core infrastructure funds typically drawn within 12–18 months, closed‑ended value‑added and private equity strategies over four to five years, infrastructure more generally over three to four years, and a significant proportion of existing commitments expected to be drawn in the near term.

vii.          A Member stressed the Committee’s fiduciary duty to consider all returns and questioned the value of lower‑return private investments, asking whether strategy might shift towards public markets. Central responded that private credit underperformance reflected foreign exchange effects, private equity remained on track, and diversification was essential despite recent public market outperformance.

viii.          It was reported that fees were payable on funds of funds in recognition of leverage provided, however, the Fund’s scale enabled preferential terms and aggregation benefits to be achieved. Members noted that certain infrastructure co‑investments were structured without management fees and that, while internal management costs were incurred, no additional fee was charged.

ix.          The Committee briefly discussed private credit, noting recent press coverage and market interest. Central explained that concerns had centred on certain retail-focused private credit funds, such as those managed by Blue Owl, which targeted high‑net‑worth individual investors. These funds had experienced significant withdrawal requests, creating liquidity pressures because the underlying assets were illiquid. It was confirmed that the Fund did not invest in these retail vehicles. Instead, investments were made through closed‑ended private credit funds with institutional investors, where capital was expected to be locked in, thereby reducing the risk of forced asset sales.

RESOLVED:

That the Committee note the report and presentation.