Agenda item

This paper summarisesthe current allocation to UK Equities and the risks and benefits of holding this allocation.

Kevin Humpherson, Deloitte introduced the report and noted that the Partners Group Fund was in wind down, therefore recommended that the Committee explored other alternatives to reallocate the investment.

It was noted that Majedie Asset Management had run the UK Equities mandate since 2005, outperforming the market by around 2.6% on a since inception basis (annualised). The main points to note from the report were:

-        Majedie had experienced poor performance in the last two years, with significant underperformance in 2017 when compared with the FTSE All Share Index.

-        Majedie had suffered particularly from a small part of its portfolio that had significantly underperformed.

-        Long term performance did however still remain positive.

-        The portfolio invested primarily in stocks with high percentages of earnings generated overseas, providing less currency risk diversification.

-        There were no long-term concerns with Majedie Asset Management in continuing to manage the mandate if the Committee wished to maintain an allocation to UK Equities

Michael Adam, co-opted Member asked for further clarification to be provided around the Fund’s positioning. In response Kevin Humpherson said that the Council would need to review its total UK equity portfolio. Majedie had not positioned the Fund on the basis of a particular Brexit outcome and as such held a mostly balanced portfolio. The UK Equity Fund had always used stock selection and sector views as opposed to relying on the macroeconomic views. The UK Equity Fund had less exposure to UK companies with global revenues in comparison to the wider market, therefore should be less affected by a sterling rally should Brexit developments prove favourable. However, this position would lose out if sterling depreciated further as a result of a no deal Brexit.

The Chait asked how quickly the Council could exit the Majedie fund, should the Committee consider an alternative asset class within Equities. In response Kevin Humpherson said that a plan would need to be agreed and this could be effectively implemented very soon. A redemption request would be made to the LCIV. There would be no redemption fees, however a standard transition cost would apply.

Members asked whether the Fund’s performance was collectively monitored. Kevin Humpherson said that this had been monitored and views were based on the track record and past performance of the active manager when dealing with this type of investment in equities.

Phil Triggs, Director of Treasury and Pensions noted that all the other local authorities in this sub fund had withdrawn and only two still remained invested in the Majedie fund. In addition, should the committee decide to withdraw, they should consider reallocating the portfolio to the passive global markets due to the risk faced with UK equity markets. For example, the MSCI low carbon global index would be worth exploring as a short-term investment.

The Chair requested that a breakdown of the Fund’s asset allocation, including interim valuations be brought to the next meeting for a further review.

RESOLVED -

THAT, the Sub-Committee noted the current performance of Majedie and approved the immediate termination of the LCIV Majedie UK Equities portfolio and transition of the portfolio to the LGIM MSCI Global Low Carbon Index-Tracker fund.