Agenda item

10.25

 

David Vickers will cover the key issues within the financial markets, the performance of the Brunel portfolios and his view of the key developments going forward.  Members will be invited to ask questions on all elements of David’s presentation.

David Vickers, Chief Investment Officer, Tim Dickson the Client Relations Manager and Liz McKenzie the Shareholder Non-Executive Director at Brunel all attended the meeting to present Brunel’s Performance Report for Quarter ending 31 December 2021. 

 

The Committee was informed that the situation in Ukraine would have implications on the Fund investments for the short term, and that Brunel had made the decision to not make any new investments in Russian assets, and to dis-investment from any current Russian assets wherever feasible to do so. David Vickers confirmed that this decision was made on investment/fiduciary duty grounds.

 

Reference was made to the need for contingency plans for the Fund’s investments if the war in Ukraine spreads.

 

Discussion took place on the long-term impact of the sanctions against Russia and the implications on investment governance and risk of stranded Russian assets.  Overall, as a long-term investor, it was believed that the Pension Fund could ride out any short-term volatility in asset values with the exception of the Russian assets previously discussed where long-term value could remain close to nil.

 

David reminded the Committee of the Strategic objectives for Brunel which were:-

·       Offering a client driven range of products and services to ensure our clients remained at the forefront of pension fund investment

·       Outperforming benchmarks in long term (min 3-5 years listed, longer PM)

·       Providing additional benefits (beyond financials) not available pre-pooling including stewardship, responsible investment, diversification and risk analysis

·       Taking a prudential approach, managing risk wherever possible through

robust governance and controls

·       Making fee savings, whilst maintaining performance. Total fees are £13mn lower vs pre-pooling. Total Investment Management fees are 14bps lower than the market. Targeting cumulative net savings of £550m to 2036.

 

The Committee was provided with Cost Transparency Initiative data for 2019-21 for Brunel compared to the market average:-

 

·       Management Fees -  21 basic points (bps), (market average 35 bps)

·       Total Investment costs - 43 bps, (market average 62 bps)

·       Pool-level transaction costs 16 bps, (market average 18 bps).

 

Information was provided on the Portfolio launches and Members were informed there were 17 listed market portfolios and private market portfolios across 5 asset classes.

 

Global High Alpha:-

 

·       Targets benchmark plus 2% - 3% excess return

·       High conviction fund, 5 managers and range of styles

·       Expect volatility at individual manager level

·       Benchmark agnostic, fundamental stock selection

·       Bias tilt against value and towards growth

·       Underweight energy and utilities; low carbon intensity

·       Overweight IT, consumer stocks

·       Very strong outperformance since launch

                                                                                                

Global Sustainable Equity:-

·       Targets benchmark plus 2% excess return

·       Originally 3 managers now 5 with deeply integrated RI

metrics throughout the process

·       The portfolio will use a broader strategy consideration of

environmental and social sustainability to identify

companies and investment themes able to succeed in

the long term by contributing to society

·       Maximise exposure to “positive pursuit” companies

·       Primarily growth focussed

·       Anti value bias, very little in Energy and Banking sector

·       Carbon intensity is well below benchmark, but it

is nuanced. Orsted for example has a high carbon

intensity because of its turbines.

 

Active UK Equity:

·       Targets 2% excess return

·       Combines quant and fundamental approaches in its

allocation via Baillie Gifford and Invesco

·       Style neutral but with a quality tilt

·       Fund is underweight oil & gas sectors

·       Carbon intensity is below benchmark

 

Emerging Markets:-

·       Targets benchmark plus 2% 3% excess return

·       Balance of investment styles across 3 managers

·       Alpha drivers based on quality and stock selection

·       Country skew underweight China, positive smaller economies

·       Limited exposure to Frontier Markets and Smaller Caps

·       Positive sector bias to consumer, low energy weighting

·       Carbon intensity is below benchmark

 

Multi - Asset Credit:-

·       Targeting excess return of 4% over the risk free rate

·       3 managers

·       A relatively new fund launched in 2021

·       Designed to gain exposure to enhanced credit

opportunities with low interest rate sensitivity

·       Incorporates; High Yield, Loans, Convertibles, Asset

Backed Securities, Emerging market bonds.

·       Average portfolio rating BB-

·       Effective duration 2.68

·       Yield to Worst 4.98%

·       Managers are mandated to develop their ESG reporting

 

Sterling Corporate Bonds:-

·       Targets benchmark plus 1% excess return

·       New fund launched in 2021

·       1 Manager Royal London

·       RLAM's returns have been consistently driven by credit

selection.

·       Modified duration 7.69

·       46% of bonds are secured versus 19% on the benchmark

 

Passive Developed Paris aligned:-

·       Passive exposure to the FTSE PAB index

·       Launched November 2021.

·       Index carbon exposure starting point is 50% below

equivalent FTSE index

·       Targets further 7% annual decline in carbon footprint.

 

Private Market Progress highlights - AUM

·       £4bn of ‘new money’ commitments to new investments as part of Brunel PM Portfolio offerings (cycles 1 + 2 combined)

·       Money will be invested over the next 4-5 years

·       £ 1,300 million of clients’ existing (legacy) property assets by Jan ’22(c.£ 150 m Oxfordshire)

·       PM Team and partners now responsible for stewardship of > £5bn of client money

To come:

·       Opportunity for clients that make commitments to Cycle 3

 

Information was provided on Oxfordshire’s investments into Brunel cycle 1 PM Portfolios. 

·       Portfolios fully committed to underlying funds

·       All funds committed to have reached final close and are fully focussed on investing capital raised over the next 3-4 years

·       PE benefitting from secondary and co investment fund exposures

·       Infrastructure has a skew towards new renewable energy assets which will take time to construct, hence are held at cost until they reach commercial operations

More direct infrastructure investments have picked up pace

·       Secured Income fully drawn down, strong performance to date

 

Information was provided on Oxfordshire’s investments into Brunel cycle 2 PM Portfolios. 

·       Infrastructure; General strong; Renewables slower than plan, but picking up

·       Private Debt draw downs picking up; expect to be 25% invested by end Q1’22

·       Very strong early Private Equity portfolio performance; draw downs increasing

·       Secured Income expected to be fully invested by end H1’22; strong performance to date

 

Details of Cycle 3 proposed portfolios: (2022-2024) were provided.

 

Details on Brunel’s Climate Change policy was reported with targets of Net Zero for financed emissions for investments by 2050, or before. Net Zero on operational emission by 2030, or before.

 

RESOLVED – (1) That Brunel be thanked for the presentation and the information provided.

 

(2) That because of turbulence in the market and the uncertainty in the world economy, Brunel be asked to submit a further report to the next meeting of the Committee providing an update on the situation.