This report follows on from the Alternative Funding paper presented to the Sub-Committee on 15 March.
Peter Carpenter presented the paper and noted the recommendations discussed at the investment strategy review working group meeting on 20 May 2017, which was to remain with the present allocation model. Relative to most Local Government allocation models, the Council’s model was not fully dependent on equities for its return and had a broad diversification, however the present portfolio was 7% overweight in equities and needed to be rebalanced as per the asset allocation strategy.
Councillor Michael Adam said to take the opportunity and use some of the profit from the equity overweight portfolio and move the assets from LGIM to Ruffer and invest the balance into infrastructure.
Peter Carpenter said following agreement from Councillors, discussions would be held with the London CIV on 21 June 2017. Councillor PJ Murphy asked how long would it take to transfer the assets. Alistair Sutherland said the process would take approximately two weeks. Councillors queried if LGIM was in the London CIV. Peter Carpenter responded LGIM was a life fund, therefore could not be a CIV product however the Council was paying a lower fee through the London CIV.
Alistair Sutherland, in reference to Appendix D, noted that four infrastructure investment options had been considered and additionally infrastructure would depend on drawdown rates. Councillor Michael Adam highlighted that the Aviva fund invested in unleveraged infrastructure assets and actively sought assets with limited competition for structural reasons, therefore wouldn’t pose a risk that came with leverage.
Councillors noted that there was an overlap between Aviva Investors and Hermes Investment Management and felt that they were a similar product. Councillors felt that they needed to meet with the organisations to assess their financial viability prior to making a decision. Alistair Sunderland recommended that if Councillors wanted to meet with three different infrastructure managers he would recommend a combination of Aviva Investors, Standard Life Capita Partners, and First State Investments. Peter Carpenter said he would invite the organisations to present to the Sub-Committee at a separate selection meeting within 6 weeks.
Peter Carpenter noted, in relation to Friends of the Earth he had informed the Leader Councillor Stephen Cowan that the Council would continue to embed the present allocation strategy due to their fiduciary responsibility, therefore would not make any decisions in the short-term, but would review the position after 2 years. In addition, at the meeting Friends of the Earth were asked for a consistent position across London for clarity and consolidation of Investment Vehicles. Councillor Guy Vincent commented that actual carbon items were with the London CIV and no longer directly with the Council.
1. That the Pension Sub-Committee considered the options set out in this report to examine the present investment strategy, the results and requirements of the recently completed triennial revaluation, external factors and investment opportunities to evaluate any changes required to the present investment strategy set out in the statement of investment principles to ensure that the fund’s assets grow (and were protected) at an adequate rate to meet on-going liabilities.
2. That if more work was required to move the strategy forward, that meetings were scheduled over the summer to make sure the updated strategy was ready in October 2017.