Agenda item

11.00am

This report will cover an overview of the financial markets, the overall performance of the Fund’s investments against the Investment Strategy Statement and commentary on any issues related to the specific investment portfolios.  The report includes the quarterly investment performance monitoring report from Brunel.

The Committee is asked to note the report.

Report to follow.

Anita Bathia, Independent Financial Advisor presented the report which provided an overview of the financial markets, the overall performance of the Fund’s investments against the Investment Strategy Statement and commentary on any issues related to specific investment portfolios.  The report included the quarterly investment performance monitoring report from Brunel.

Anita Bathia highlighted that the Fund had increased to £3.9bn for the third quarter with a return of 4.9%, which was below the benchmark which returned 6%.  The main driver of this relative underperformance continued to be the two largest global equity mandates, the high alpha and the sustainable fund, both of which were managed by Brunel.  Over the long-term, the fund continued to trail its benchmark over one, three, five and ten years, however, returns remained strong over the 30-year period at 7.4%.

She highlighted the key action areas over the last few months and emphasised that despite the transition to LGPS Central, it remained business as usual with Brunel continuing to manage the Fund.  Managing stability at Brunel would be critical at this time until the orderly transition took place.

She highlighted the Strategic Asset Allocation currently under review which produced an opportunity to articulate new asset class exposures but would also be beneficial to add more inflation protection strategies which could be carried out through a different mix of asset classes such as housing, but also infrastructure, natural capital and other index linked products.

She noted that the investment into housing, to be agreed further on in the agenda marked an important step towards a more diversified and place aligned portfolio and further increases in these areas might be considered during the Strategic Asset Allocation as it also aligned with the local investment strategy.

She highlighted the turbulent times ahead, especially in light of political and fiscal pressures, and advised that considerations for long term investment should remain diversified, with use of private markets and real assets selectively, and also to be disciplined about the pace of new commitments to concentrate on long-term growth.

Following a query from the Committee regarding the level of performance of the quoted assets within the Fund, and whether Private Equity Investment Trusts were outperforming other assets, Anita Bathia advised that these were limited companies and determined by their share price, however she would clarify the private equity investments in Table 1 of the report and identify an appropriate benchmark.  (ACTION)

In response to a query regarding the underperformance of sustainable fund, Anita Bathia advised that there were other circumstances at play that had impacted this fund, however it would be for the Pension Team and the Committee to rethink and refine their commitments to climate goals, sustainability and responsible investment values, especially as they transitioned to the new Fund with LGPS Central.

Further to Anita Bathia’s comments on inflation strategy protections, the Committee requested additional information and she advised that there were many exciting strategies within the private markets, and local stakeholder buy-in could be explored with local investment strategies and investment in the real economy.

In response to her introduction where it was stated that Europe is in a weak position, Anita Bathia advised that there was hope and expectation that over the long term, fiscal stimulus would feed into a growth opportunity, however due to the current dialogue from the US and political instability, these were short to mid term drivers impacting on fiscal stimulus.  In response to queries from the Committee regarding investment into Japanese equities, she advised that there were opportunities to invest in diversified markets and they should seek Fund Managers that were specialists in this area.

In response to a query from the Committee on the position of UK rates, Anita Bathia advised that it would be difficult to judge at this time due to the sticking point of inflation.

The Committee noted the report.