Agenda item

10.35am

The report of the Independent Investment Advisor sets out the direction of travel for the Fund’s Strategic Asset Allocation for the next three years.

The Committee will be recommended to approve the following recommendations.

1. Against a higher inflationary environment to work with Brunel to ensure that the Fund’s assets continue to match the liability profile at the cashflow level, including if necessary generating sufficient income to fund increased pension payments.

2. To consider if the Fund should put in place a currency hedging strategy, utilising the resources available through Brunel.

3. To review the exposure to the UK equity market with the objectives of:

i. Reducing the overweight position of UK Equities in comparison to the Global UK weighting over time. Consideration will be given to switching to either the Paris Aligned Global passive sub fund or to the active Global Sustainable Investment sub fund.

ii. For the retained UK exposure to achieve better representation to UK plc in earnings terms and reducing carbon/ climate risk exposure, either on a passive or active basis.

4. To review the Emerging Markets mandate so as to remove exposure to China so far as is practically possible.

5. In the absence of similar arrangements being offered by Brunel, to retain the listed Private Equity (PE) portfolio and return the management of that to a semi-active basis to ensure that an appropriate balance of investments is maintained.

6. To continue to work with Brunel and independently to meet the Fund’s evolving ESG and Climate policy requirements.

7. To consider the DLUHC “Levelling Up” local investment proposals

8. To confirm that the Fund will continue to reinvest on a timely basis capital distributions made by legacy managers and Brunel as investments mature.

Consideration was given to a report of the Independent Investment Advisor which set out the direction of travel for the Fund’s Strategic Asset Allocation for the next three years.

The Committee was reminded that the purpose of this Strategic Asset Allocation Review was to:

·       to take stock on the performance and composition of the Fund's Asset Allocation;

·       to recommend any changes required to the Fund's Asset Allocation to maintain targeted returns, including cashflow, whilst considering the Fund's appetite for volatility, liquidity risk and the need for diversification of risk;

·       to consider the work that the Fund has undertaken in relation to Environmental, Social and Governance (ESG) issues, with a particular focus on climate change.

Members were informed that the asset review was a rolling process, looking at the asset allocation, and looking at all aspects of portfolios and what they were meant to be doing.

It was emphasised to the Committee that the recommendations were designed to shape the strategic direction of the Fund’s investment strategy but it would involve further work and consideration before definitive recommendations are made to the Pensions Committee at the appropriate time.

Discussions took place on the suggested recommendations and the following comments were made:

·       Action would need to review the impact of inflation and a discussion took place on the implications for a positive cash flow. Members were advised that currently all income on secured income and propertywas re-invested, and it maybe more appropriate to carry on with the existing strategy and convert these to distribute income back to the Fund when needed rather than to have more liquid assets.

·       Consideration needed to be made to the impact of the rise in the minimum wage and an increase in wages.

·       Hedging strategy provided an opportunity to protect funds. In relation to currency, the dollar had been strong for some time and Brunel had the means to put in place hedging arrangememts. 

·       Reduction of exposure to equities in the UK market – the current allocation to the UK market equated to 29% of the total equity investments which was 25% higher than the benchmark of 4% which the UK market formed of the global index..   It was also agreed that we should reduce exposure to FTS 100 and looking for exposure to FTSE 250.

·       On emerging markets, China investments represented 35% of the index.  Given concerns about the social and governance risks associated with investments in China, consideration should be given to asking Brunel to develop an emerging market portfolio excluding China. 

RESOLVED  - That approval be given to the following recommendations:

(1) Against a higher inflationary environment to work with Brunel to ensure that the Fund’s assets continue to match the liability profile at the cashflow level, including if necessary, generating sufficient income to fund increased pension payments.

(2) To consider if the Fund should put in place a currency hedging strategy, utilising the resources available through Brunel and this be reviewed annually.

(3) To review the exposure to the UK equity market with the objectives of:

i. To explore further with Brunel, reducing the overweight position of UK Equities in comparison to the Global UK weighting over time. Consideration will be given to switching to either the Paris Aligned Global passive sub fund or to the active Global Sustainable Investment sub fund.

ii. For the retained UK exposure to achieve better representation to UK plc in earnings terms and reducing carbon/ climate risk exposure, either on a passive or active basis.

(4) To explore further with Brunel the option of creating a separate China sleeve from the emerging market mandate and deciding on relative weighting.

(5) In the absence of similar arrangements being offered by Brunel, to retain the listed Private Equity (PE) portfolio and return the management of that to a semi-active basis to ensure that an appropriate balance of investments is maintained.

(6) To continue to work with Brunel and independently to meet the Fund’s evolving ESG and Climate policy requirements and to explore with Brunel the Oxfordshire local aspect.

(7) That no action be taken at this time on the DLUHC “Levelling Up” local investment proposals.

(8) To confirm that the Fund will continue to reinvest on a timely basis capital distributions made by legacy managers and Brunel as investments mature.