Agenda and minutes

The minutes of the meeting held on 15 March 2023 were confirmed as correct.

The Investment Fund Manager presented a report on the Fund’s performance during the period 1 January to 31 March 2023 (Quarter 1), including details of the performance of individual Fund Managers. The Committee also received a verbal update on the unaudited performance of the Fund up to June 2023, together with an update on the Fund’s Investment Strategy and performance, more details of which were contained in a review report presented under agenda item 11. There was also a verbal report from Nick Jellema, Hymans Robertson and input from John Raisin, Independent Adviser to the Committee as to the current economic market position. 

The Committee noted:

(i)  The progress on the strategy development within the Pension Fund,

(ii)  The daily value movements of the Fund’s assets and liabilities outlined in Appendix 1 to the report, and

(iii)  The quarterly performance of pension funds collectively and of Fund Managers individually.

The report presented by the Pension Fund Accountant provided an update on the administrative and governance changes that had occurred since the last meeting and the potential impact that the changes may have on the Pension Fund going forward. It set out the Fund’s one and three-year cashflow forecast (1 April 2023 - 31 March 2025), as well as an update on the London Collective Investment Vehicle (LCIV) as the Fund moved towards more pooled investments.

The Committee NOTED the report.

The Committee’s Independent Advisor presented his quarterly update on the Local Government Pension Scheme (LGPS) which covered the following matters:

-  Changes to the Scheme Advisory Board (SAB) Cost Management process,

-  Changes to Pension Taxation,

-  Further consultation on ‘McCloud’ (age discrimination in the LGPS),

-  Climate Change reporting, and

-  Investment Pooling.

The Committee NOTED the update.

The Committee noted progress on the delivery of the 2021-2023 Business Plans actions as set out in Appendix 1 to the report. 

The Pension Fund Accountant presented the draft Pension Fund Accounts 2022/23 as set out in Appendix 1. The draft accounts are due to be finalised once the formal external audit has commenced.

The Committee NOTED the report.  

Members will be given a short training session linked to the subsequent presentation of the Investment Strategy Review by Hymans Robertson.  

The Investment Fund Manager introduced a report prepared by Hymans Robertson, the Fund’s investment advisors regarding a range of proposals following the recent review of the Fund’s Investment Strategy and Structure.  He provided the background to the management of the Strategy which following a number of years of underperformance of the Fund had resulted in a complete restructure of the Fund in 2012. This led to a greater diversified strategy with an increase in the number of fund managers and a move towards more passive equity and bond investments, providing more protection from underperformance by managers whilst at the same time ensuring the Fund provided a return that was sufficient to close its funding gap.

This strategy had over the past ten plus years worked well with an incremental improvement in the Fund’s funding levels to the extent that the Fund was now over 100% funded.

Appendix 1 to the report outlined the details of the current review and set out a number of current proposals from Hymans which amounted to a few easy to implement initial strategy changes with a number of further reviews to be carried out during the year.

For the benefit of the Committee Nick Jellema, Hymans Robertson provided a short contextual briefing as to the planned aims of the Review, which was to analysis the current investment strategy so as to assess its effectiveness in meeting the Fund’s objectives and to consider whether a different strategy would be more suitable.  In short, to ensure the Fund can pay Members pensions and lump sums as they fall due, reduce the risk of deficits emerging to protect against significant increases in contribution rates and achieve sufficient investment returns to keep the costs of new benefits accruing reasonably.

Nick explained the approach adopted to conduct the review which he described as strategic versus structural considerations. This involved considering the three key asset classes (strategic) of Growth (such as equities), Income (such as property, infrastructure and credit) and Protection (such as UK gilts) and the proportion of investment between each. The Fund’s exposure to each of the asset classes was then considered (structural), evaluated through what was known as asset liability modelling, the purpose of which was to re-evaluate the current strategy against a number (in this case three) plausible alternatives, projecting a range of funding outcomes across a wide range of macroeconomic scenarios calculating key metrics such as the likelihood of full funding and downside funding risks. Each of the three alternative strategies were summarised in the appendix

Given the Fund was currently in surplus (106% funded) it was Hymans view that based on the modelling outcomes over a future 20-year period (to 2042), the probability of retaining a funding level in excess of 100% remained very high, with a slight upward trend in likelihood for the more de-risked strategies exampled in alternative strategy 1.

The key message from the findings was that the Fund had reached a position where the benefit of limiting downside risks outweighed the  ...  view the full minutes text for item 8.