Agenda item

This item provides the Pension Fund Committee with an opportunity to discuss the redemption process of the London Borough of Hammersmith and Fulham Pension Fund’s allocation to Aviva’s Infrastructure Income portfolio with the chief executive of the company. 

Phil Triggs (Tri borough Director of Treasury and Pensions) provided a summary of the key points. The first tranche of redemption payments (£5m) was paid on 30^th January 2024, but the remainder of the redeemed funds would not be available to be paid back until at least August 2024.  At the last Pension Fund Committee meeting of 20^th February 2024, representatives from Aviva discussed updates to the redemption process with the committee and agreed a number of actions to improve communication of the process between Aviva and the LBHF Fund in future.

The Chair also requested that representatives from Aviva should attend this Committee to provide an additional update, should the final outstanding funds not have been paid to the Pension Fund by the date of the committee meeting. Final funds were still awaited.

Mark Versey (Aviva Investors) apologised to the Committee for not meeting the redemption process timeline. It was noted that a thorough investigation had been conducted and the team had worked tirelessly to sell assets, however, this was unsuccessful due to the prevailing interest rate environment. It was noted that six energy and heating units, which powered hospitals across the country had been sold. A legally binding offer had been received and once the legal documents were signed and funds transferred the payment would be made. An agreement would be expected within the next two weeks and the expectation was that the Council would receive its redemption monies by the end of August 2024. However, there could be delays in this timeline due to the administrative process and timing in receiving the signatures from the NHS Trust.

Aviva expressed pride in the returns the fund had generated. Upon reviewing the fund’s performance over the investment period, Aviva felt that they had achieved the objectives set out for the fund, however, there had been a delay in the redemption process due to the inability to sell assets last year.

The Chair requested that Aviva attend the next Pension Fund Committee meeting in September 2024 if the redemption monies had not been received by the end of August 2024.

Councillor Adam Peter Lang raised a series of concerns on the length of time it was taking Aviva to make the payment, noting that this delay was unacceptable. Mark Versey (Aviva Investors) outlined the reasons for the delay, noting that this was mainly due to the nature of the illiquid assets such as infrastructure. He explained that Aviva had taken all the appropriate steps to meet the deadline but was unable to secure a bid for the assets within the timeframe due to the high interest rate market. Since then, market liquidity had improved, offering much more stability.

Councillor Florian Chevoppe-Verdier asked for further clarification on the income generated from the fund and the associated management fees since the 31 December redemption deadline. Mark Versey (Aviva Investors) noted that over the whole investment period from inception the fund generated an annualised return of 0.6% and the management fees were approx. 0.5% per annum.

Members asked Aviva if they would provide any compensation for losses occurred as a result of the late redemption. In response Mark Versey (Aviva Investors) noted that Aviva would investigate this further and write to the Council within a week.

Michael Adam (Co-opted Member) asked a series of questions. Firstly, he enquired whether the price that Aviva had accepted for the assets sold was above or below the most recent net asset value. Secondly, he questioned how the sell offer could be legally binding for the buying party before the final documentation was received. Mark Versey (Aviva Investors) explained that the assets were sold in line with the most recent net asset value. Dave Sapsford (Aviva Investors) in relation to the legally binding offer explained the legal process, noting that signatures from the buyer of the assets had been received and next step was to obtain signatures from the NHS Trusts to complete the process.

Marian George (Independent Investment Advisor) expressed concerns that the August summer break could potentially cause further delays in the process. Mark Versey (Aviva Investors) explained that based on the information available and delegated authorities received from two Trusts, Aviva had high expectations that the money would be paid in August 2024.

Councillor Laura Janes requested that a copy of the full investigation conducted by Aviva be sent to the Committee.

Action: Aviva

Councillor Florian Chevoppe-Verdier requested that confirmation be sent to the Committee on which Trusts, Aviva had received delegated authority from.

Action: Aviva

Councillor Adrian Pascu-Tulbure, reflecting on the lessons learned, asked whether sufficient emphasis was placed on communication as a crucial element in the redemption process. Mark Versey (Aviva Investors) assured members that as part of Aviva’s internal assessment more regular communication would take place with investors.

The Chair summarised the following actions requested by the Committee:

• A write up of the full investigation conducted by Aviva.
• Confirmation on which Trusts, Aviva had received delegated authority from.
• Aviva to look at providing compensation for losses occurred as a result of the late redemption.
• Confirmation of the dates of the internal boards and evidence of the two Trusts that had provided delegated authority.
• A narrative of the wider lessons learned.
• Formally clarify and set out Aviva’s apologies to the Committee.

Action: Aviva investors

Councillor Rowan Ree enquired whether Aviva believed the redemption terms were adequate or if they should be revised going forward. Mark Versey (Aviva Investors) explained that Aviva would review this area for future fund launches and felt that 18 months from receipt of notice to final payment of funds was an appropriate timeframe.

RESOLVED

That the Pension Fund Committee discussed the numerous concerns surrounding the redemption process (Infrastructure Income portfolio) with Aviva.