Agenda item

11.55

This will be the first report of the new Independent Financial Adviser and will cover an overview of the financial markets, the overall performance of the Funds investments against the Investment Strategy Statement and commentary on any issues related to the specific investment portfolios.  Members will be invited to discuss the report and provide guidance on what they wish to see in the future reports from the IFA.

The Committee received the first report of the new Independent Financial Adviser, covering an overview of the financial markets, the overall performance of the Funds’ investments against the Investment Strategy Statement and commentary on any issues related to the specific investment portfolios.

Philip Hebson summarised his report and gave some first impressions:

·         He believed that Property had recovered since Covid, that the office sector was resilient and that there was a demand for Covid-friendly high-quality space especially in London.

·         It was possible for companies to have very good internal governance but be operating in a country with a poor human rights record for example.  He believed that concerns at government level were likely to move up the agenda.

·         There were concerns that investment in renewables was going to cost more as demand increased, and increased cost meant increased risk.

·         In the Brunel report he found it difficult to see who was managing money and how they were managing it.  He believed that the public market information needed greater detail while the private market section needed to be more concise.

·         He did not share the general view that the recent increase in inflation was temporary.  Energy prices might correct themselves but labour will probably continue to be more expensive.

·         On COP26 his analysis was that a lot was achieved, even if it was not as much as some people wanted.  There was an opportunity to continue the movement in the right direction through investments.  In particular, forestry was good for profits and good for carbon credits.

Members of the Committee raised a number of issues and Philip Hebson responded as follows:

·         While the City of London was quieter, most city centres were busy again.  Many financial firms still needed staff in office.  There was also an issue with increased mobility of labour which will take some time to work through.

·         As funds divest from fossil fuel companies, there is a risk that the assets will end up in the private equity sector in the hands of people who care little about the climate or environment.

·         Some major oil companies were amongst the biggest investors in renewable energy.  It was likely that they will split their fossil-fuel and non-fossil fuel interests at some point in the future.

·         Oil and gas companies were still exploring because the reality was that there will continue to be a demand for these fuels as the transition cannot happen overnight.

·         There was a risk now in equity which had performed very well in recent years.  However, he believed that bond markets were currently overvalued.

·         He would support a move into infrastructure but at the moment there was a lot of money chasing very few projects.

·         You can insure forestry against most risks except disease.  That can be limited by good design.

·         The fund was well placed to take opportunities to assist the less wealthy parts of the world following the lack of willingness seen at COP26 on the part of the wealthy nations.  The fund had already moved in that direction and it was important to continue a balanced and informed approach.