Agenda item

This paper provides the Pension Fund Sub-Committee with a summary of the Pension Fund’s overall performance for the quarter ended 31 March 2019.

The Chair welcomed Heather Brown and Ian Berry (Aviva Investors) to provide a presentation, relating to the performance of the Aviva Fund. The following points were noted:

-        In December 2017 the Council made a £30m investment in the Fund.

-        The Fund invested in low risk assets for regular long-term incomes.  Majority of the fund was invested in small scale solar PV and utility-scale onshore wind sectors.

-        An overview of the Fund’s characteristics was provided.

-        The Fund provided a stable level of regular income of 7-8% yield per annum. It was noted that past performance was not a guide to future performance and the value of an investment in the Fund could decrease as well as increase.

-        Aviva had excellent Environmental, Social and Governance (ESG) credentials and worked together with an independent consultant to develop a ‘carbon calculator’ tool to measure the carbon equivalent savings associates with the portfolio.

-        Approximately 20% of the Fund’s portfolio was installed on social housing properties, with an expected higher rate of individuals experiencing fuel poverty than average.

-        An overview was provided of the total transaction value held across Aviva’s managed portfolios.

Councillor PJ Murphy, referring to the market sectors slide in the presentation asked if the Fund would face any challenges in terms of long-term sustainability after taking into consideration any potential changes to the government legislation. In response Ian Berry explained that all of the sectors were sustainable in the longer-term. There was always a potential of risk, but this took place very rarely. In addition, Aviva investors were not concerned about any legislation changes as all the portfolios were well regulated and contracted.

Michael Adam, Co-opted Member asked for further clarification to be provided around the asset split between the different market sectors. Ian Berry explained that the investments were structured to provide stable value across the market. In addition, the current assets would last for 25 operational years. The Fund was expected to grow as it stood, subject to any variation to the valuation. Council officers would be provided with regular updates of any potential changes made to the Fund. In addition, the Fund would operate using an open-ended scheme after the first 5 years and regular developments would take place ensuring that the rate of yield was being maintained.

Councillor Matt Thorley commented that the presentation was very useful and was impressed with the Fund’s performance to date.

The Chair thanked Aviva investors for the presentation and the contributions made to the meeting.

Jonny Moore (Deloitte) provided an update of the overall performance for the quarter ended 31 March 2019. It was noted that the Fund was overweight to equities and inflation protection relative to the strategic benchmark.

Over this quarter, the total Fund returned 5.5% on a net of fees basis, outperforming the fixed weight benchmark by 0.3%. In addition, the total Fund underperformed the benchmark by 1.7% on a net of fees basis over this year to 31 March 2019, returning 6.3%.

At the February 2019 Pensions Fund meeting, the Sub-Committee decided to withdraw its entire holdings from the Insight Bonds Plus Fund and pursue a buy and maintain strategy instead. This allocation was invested in May 2019 with the LCIV Global Bonds strategy which was managed by PIMCO.

Phil Triggs, Director of Treasury & Pensions, explained that Mike O’Donnell was appointed as the London CIV’s (LCIV) Chief Executive Officer (CEO) at the beginning of March 2019. In addition, following quarter end, at the beginning of May 2019, Michael Pratten joined as interim Chief Investment Officer (CIO).

The Chair, referring to Appendix 1, asked for clarification around the difference between the number of employers during the period of June 2018 to September 2019. Phil Triggs said that he would circulate a detailed explanation after the meeting.

Action: Phil Triggs

Councillor PJ Murphy asked for an update to be provided on the progress made to date by LCIV. In response Phil Triggs explained that good progress had been made and increased confidence and enthusiasm was expressed amongst London Local Authorities. The key to this positive transition was the appointment of the CEO and CIO who both demonstrated wide knowledge, experience and expertise. In addition, the general view within London local authorities on pooling was to continue engagement with LCIV. It was noted that funds would retain responsibility for strategic asset allocation whilst LCIV would be responsible for manager selection, in line with the most recent pending legislation developments.

The Chair asked if the LCIV intended to provide higher level of support to LA’s for ESG factors going forward. In response, Phil Triggs said that that he would need to review the business plan to establish this. However, he felt that, whilst good progress was being made, there would be a period of readjustment before the LCIV could provide a similar level of service to the Brunel Pension Fund.

RESOLVED -

THAT, the Sub-Committee noted this report.