Agenda item

This paper provides the Pension Fund Committee with a summary of the Pension Fund’s:

·       overall performance for the quarter ended 30 September 2022;

·       cashflow update and forecast;

·       assessment of risks and actions taken to mitigate these.

This item includes an appendix that contains exempt information. Discussion of the appendix will require passing the proposed resolution at the end of the agenda to exclude members of the public and press.

Patrick Rowe (Pension Fund Manager) introduced the report which provided a summary of the Pension Fund’s overall performance for the quarter ending 30 September 2022, a cashflow update and forecast as well as an assessment of risks and actions taken to mitigate these. He highlighted the following: 

·       The unaudited figure of the fund value as of 4 November 2022 stood at £1.26 billion. It was reassuring to note that the fund value had been moving fairly flat despite market volatility; and 

·       The ESG dashboard had been updated with additional features and hopefully would soon be open to fund members’ use.  

Members noted that the dashboard was an innovative piece of work accessible to fund members which would help enhance the LBHF Pension Fund’s governance and transparency. It was further noted that the LBHF Pension Fund had been nominated for a LGPS Fund of the Year at the LAPF Investments Awards 2022 and the dashboard was an important part of the nomination.    

Phil Triggs (Director of Treasury and Pensions) noted that the dashboard, being the first of its kind for the LGPS, was well received at the LGC Conference in Leeds in September 2022 at which he was privileged to chair the session.  It was anticipated that the dashboard would become a marketable package for the LGPS and could generate some income for the Fund. It was indeed a huge recognition of the Fund. 

Councillor Adam Peter Lang expressed appreciation that some councils had expressed interests about the dashboard which helped promote the H&F council. The Chair said he was proud of the achievement and would celebrate it by moving a motion at the next Full Council meeting to highlight this piece of exceptionally innovative work. 

ACTION: Councillor Ross Melton 

Patrick Rowe continued to brief members on the Pension Fund’s risk registers.  Phil Triggs and Kevin Humpherson (Deloitte) outlined the Aviva situation.  

Councillor Florian Chevoppe-Verdier referred to the employer risk (#33 on page 119) and asked if the trending up was due to savings. Patrick Rowe noted that the risk rating was determined by a few factors, and it was trending up because of the current market movement. Marian George (Independent Advisor) said the rating might have actually changed in the course of time. 

On the risks around Brexit (#3 on page 116), Marian George said that while there would still be issues relating to Brexit, the extent of uncertainty might be too small to cause volatility. Phil Triggs agreed that the fallout of Brexit which had happened some six years ago should have become ingrained in the economic system. Patrick Rowe said he was happy to remove this risk from the register, but how Brexit was going to be fully resolved was still in the news.  

Councillor Chevoppe-Verdier noted that the uncertainty regarding the Northern Ireland Protocol under Brexit remained as the free flow of movements and orders were still causing an impact. He agreed that the part relating to the supply chain disruption was now a fact of life and could be taken out. Iain Cassidy preferred to keep Brexit in the risk register as the Committee might be the Council’s window to note the relevant issues of Brexit. Councillor Janes agreed with their views. 

Councillor Chevoppe-Verdier referred to previous discussion about the approach of incorporating all the risks for members to take a broader view of the matter. 

Referring to the property risk, Councillor Adam Peter Lang considered it necessary to be mindful of the property price movements when assessing this particular asset risk. Michael Adam noted that the properties held by the Fund were long-term investments like social housing or commercial properties with long leases to supermarket chains or government departments. He said that the short-term valuation falls were unlikely to be crystallised as there was no requirement to exit and rental income was unaffected.  Kevin Humpherson highlighted the Fund’s diverse portfolio under which property only constituted about 10%. He added that current fluctuations due to inflation would usually take effect at a later period in the valuation cycle. Echoing Mike’s view, Phil Triggs said he was not concerned about short-term fluctuations, say, going down 5% over an annual cycle, as it would revert over the long-term investment period looking ahead.   

Councillor Laura Janes, in reference to the risk about staff recruitment for the Pension Administration team and the mitigation actions (#46 on page 121), said the entry might be reviewed to reflect the teething problems, if any, raised by Eleanor Dennis earlier for members to consider if they could give any further support.  

Jonny Moore (Deloitte) introduced the Deloitte Quarterly Report for Quarter ended 30 September 2022.  

Councillor Chevoppe-Verdier asked about the scale of manager ratings listed on page 76.  Kevin Humpherson noted that managers were rated from 1 (most positive and most likely to deliver outperformance) to 4 (most negative). 

Noting the movement of two key personnel in London CIV, Councillor Chevoppe-Verdier was concerned about any actions alarmed by this. Kevin Humpherson agreed that changes in leadership might affect day-to-day operation and warrant corresponding actions, but it did not impact on the long-term plan and the types of strategy launched. He noted that the underlying manager from Morgan Stanley would provide the necessary cover. 

In reply to Councillor Chevoppe-Verdier’s further enquiry, Kevin Humpherson compared the 3-year investment returns of certain asset class. For example, some equities which had returned 8.5% over the last three years had outperformed those having 5% return under the 5% discount rate scenario.  Fixed income products and the purchase of private assets in the secondary market might offer opportunities for attractive pricing and yield in the current market.  He undertook to bring an investment strategy to the Committee at its next meeting. 

ACTION: Kevin Humpherson 

Members exchanged views on the arrangements of discussion items.  Marian George suggested the Committee having some training on investment strategy before the next meeting, followed by the discussion of the same subject first thing on the agenda.  The Chair said between the two responsibilities, the Committee would have regular meetings on pension investment while seeking some focusing solely on pension administration. 

ACTION: Phil Triggs  

RESOLVED 

1.      The Committee noted the update. 

2.      The Committee agreed to move a motion at the next Full Council meeting to celebrate the achievement of the dashboard.