Agenda item

10.25

David Vickers, the recently appointed Chief Investment Officer from the Brunel Company will attend to discuss the latest position on the investments through Brunel and his vision for future developments, with reference to the Investment Performance Reports.

David Vickers, the recently appointed Chief Investment Officer from the Brunel Company attended the meeting and gave the Committee a presentation on the latest position on the investments through Brunel and gave his vision for future developments, with reference to the Investment Performance Reports.

Brunel’s strategic objectives included:

•       Offering a client driven range of products and services to ensure 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, of £27.8m (8.9bp) by 2025

•       Managing transition and operational costs to achieve breakeven by 2023 and cumulative net savings of £550m to 2036

Members were informed that Brunel currently managed c. £20 billion of assets and transitions had occurred largely in a linear fashion. Progression was good and was made at good speed. Most of the £20 billion of assets were in equity portfolios.

A Member referred to heavy investment exposure in organisations such as Apple, Microsoft, Alphabet and Google who were being investigated for the amount of tax they paid, and he questioned the ethics of this investment policy. It was suggested that Healthcare should be more prominent in the portfolio, particularly in relation to Covid 19 and the vaccines and reference was made to Tesla as another area where investment should be.

In response to a question on crypto-currency and block-change technology, the Chief Investment Officer of Brunel commented that bitcoins were presently unregulated which was why money was not put into this area. However, some central banks had been in talks about using their own digital currency, so there may be developments in the future. Currently bitcoins were unregulated and were not favoured by the Government.

In relation to block-change technology, this was an interesting sector as this was technology which removed intermediaries and had the potential to revolutionise how business was carried out.

Regarding emerging markets, the Committee was informed of the following:

•       Balance of investment styles across managers

•       Alpha drivers based on quality and stock selection

•       Country skew U/W 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

•       Fund was ESG integrated

U/W China (Many of China’s companies were state owned and were primarily run for the benefit of the Chinese Government). The Chinese economy had not suffered as a result of Covid 19 as most other world economies had.

Regarding Active UK Equity - Targeted 2% excess return, targets 0.9 - 1.1 beta.

Combined quant and fundamental approaches were style neutral but with a quality tilt. The fund was underweight oil & gas sectors. As a result of Brexit and the falling exchange rate, investment in UK from overseas decreased, particularly from US investors. 80% of the FTSE revenues were from outside the UK. The portfolio was less carbon intensive than the benchmark.

Global Sustainable Equity - There were three managers which deeply integrated ESG metrics throughout the process. Exposure to “positive pursuit” companies was maximised, were primarily growth focussed and carbon intensity was well below benchmark.

Investments were taking place in people who were providing solutions.

Discussion took place on the situation in China and around the use of fossil fuels and China being the world’s biggest emitter of carbon. Members were informed that one should look to divorce Chinese companies from the Chinese Government and their policies, albeit this was difficult.  However, a reference was made to the commitment made by the Chinese to be carbon neutral by 2060. Also, that use of fossil fuels was not just a Chinese problem, it was also a Western problem with the USA and Europe also being large emitters. China today equated to approximately 40% of the whole emerging market index and so in this context, was impossible to ignore.

Reference was made to duplication in portfolios (10% - £126m) invested in the energy market and high equity and the Committee was informed that managers were given restrictions, but it was not unusual to see duplications.

The Committee was provided with the private market assets under management (AUM) progress highlights:-

•       £3,760 million of ‘new money’ commitments to new investments as part of Brunel PM Portfolio offerings (cycles 1 + 2 combined). The money would be invested over the next 4-5 years

•       £1,300 million of clients’ existing (legacy) property assets by January 2021(c.£135m Oxfordshire)

•       PM Team and partners now responsible for stewardship of > £5,000 million of client money

•       To come there was an opportunity for clients that made commitments to Cycle 2 to ‘top up’ their commitments in April 2021

•       Cycle 3 planning would commence in early Summer 2021, to launch in 2022.

Details of Cycle 1 and 2 priorities were reported.

Discussion took place on the time it took Brunel to invest in private equities and Members were informed that Oxfordshire Pension Fund had started from a standing position in relation to this. It would take 4-5 years to get this up and running.

The Committee was informed that in cycle 2 there were total commitments of £220m with several parties engaged (Aksia, Stepstone, Neuberger/Berman). In response to a question regarding there being a greater focus on carbon metrics than eco metrics, the Committee was informed that metrics were developing all the time.

To deliver the Business Plan there would be

•       Enhanced Client Reporting to develop overall presentation, content and value of these reports

•       Private Market Resilience through increasing headcount and lower key person dependency

•       Development of Responsible Investment (RI) Tools & Data/ Net Zero portfolios

•       Reviewing passive benchmarks and creating Net Zero portfolios

RESOLVED – That the presentation given by Brunel be noted and received and David Vickers be thanked for the excellent information provided in the presentation.