Agenda item
Monitoring report on fund activity for the quarter ended June 2017
This report provides a summary of the Fund’s activity during the quarter ended 30 June 2017. It examines the economic and market background, and investment performance, as well as commenting on events in the quarter.
Minutes:
The Sub-Committee received a report the provided a summary of the Fund’s activity during the quarter ended 30 June 2017 and examined the economic and market background, and investment performance, as well as commenting on events in the quarter. In summary, in the second quarter (Q2) of the calendar year, the Fund increased by 1.2% (£9.3m) from £802.7m to £812.0m compared to a 3.5% (£27.3m) increase in the first quarter (Q1). This equates to a 4.7% increase in the value of the fund in the first six months of the year.
Ravinder Jassar drew members’ attention to the asset allocation list compared to the benchmark and the investment returns in individual markets. He spotlighted on the cash deposits of £60.4m and clarified that it was being held principally for calls on capital commitments in private equity and infrastructure as well as to re-allocate to other investments. In addition, cash would also be required to fund transfer values in relation to the College of North West London as it has been agreed by their governing body to merge with the City of Westminster College and transfer their element of the Pension Fund to the London Pension Fund Authority (LPFA). This was currently planned for January 2018. He then highlighted the investment returns in individual markets.
Members heard that in fixed income, the Henderson Bond Fund had outperformed the benchmark, primarily due to positive returns from fund holdings in emerging markets and high yield corporates. On UK and overseas Equities, Legal & General funds had performed in line with benchmark figures. European properties with Aviva had considerably out-performed the benchmark in Q2. On private equity, he explained that Capital Dynamics investments were not analysed in this manner as measuring performance of private equity performance against public market indices could be misleading. This was planned to be rectified and officers were seeking to find an alternative comparison methodology. On Infrastructure, Alinda saw another negative return, a trend which was not expected to continue. He stated that officers would continue to monitor their performance in the following quarters in the year. On Pooled Multi Asset, Baillie Gifford had another strong quarter but that Ruffer had poor results. It was understood that to improve future performance, Ruffer would be investing in short term equities against long term bonds as an effective offset and to help the fund respond positively.
In the ensuing discussion, members questioned the performance of Ruffer investment and enquired as to whether this was due to their investment strategy. Conrad Hall, Chief Finance Officer, clarified that the performance could be attributed to short term volatility and added that the investment strategy was based on long term returns over 25 year period which officers considered appropriate.
Peter Davies (Independent Adviser) presented his quarterly report to the Sub-Committee. In his introduction, Peter highlighted the geo-political events, in particular North Korea and the Trump administration, the results of the last UK general elections and the Brexit negotiations and their impact on the global markets. The events made uncertain global market outlook. He drew members’ attention to the table in his report which showed that Equity markets were little changed on balance during the quarter, with UK and US indices remaining close to their all-time high levels. Within the equity market sectors, Oil & Gas and Telecommunications were significantly weak in the quarter, while Technology has become the leading sector over one year, spurred on by the strength of the ‘FAANGs’ (Facebook, Apple, Amazon, Netflix and Google within the equity market
Against this background, Peter Davies issued a note of caution on equity markets adding that it would be difficult to see equities moving into new high ground, while the ‘safe-haven’ government bond markets may well attract investors and thereby keep yields in those markets at current levels.
RESOLVED:
That the performance monitoring report and the Independent Financial Adviser’s investment report, attached to the main body of this report, for the quarter ending June 2017 be noted.
Supporting documents: