Agenda and minutes

The Committee received apologies of absence from Councillors Mitchell (Vice-Chair) and Hack.

Members are invited to declare at this stage of the meeting, the nature and existence of any relevant disclosable pecuniary or personal interests in the items on this agenda and to specify the item(s) to which they relate.

The following interests were declared at the meeting:

•         Councillor Johnson declared that he was an ex Council officer, and as such was a member of the Pension Scheme. In addition to this, Councillor Johnson was currently the Vice-Chair of Governors at Chalkhill Primary School, in which the school were members of the Pension Scheme.

To approve the minutes of the previous meeting held on 27 June 2023 as a correct record.

RESOLVED: That the minutes of the previous meeting held on 27 June 2023 be approved as an accurate record of the meeting

To consider any matters arising from the minutes of the previous meeting.

None.

No deputations were received.

To receive the Brent Pension Fund Quarter 2 2023 Investment Monitoring Report.

Kenneth Taylor (Senior Investment Analyst, Hymans Robertson LLP) presented the report, which outlined the performance of the Brent Pension Fund over the second quarter of 2023.

Regarding the overall performance of the Fund, the Committee heard that the Fund had posted positive returns over the quarter, ending the period with a valuation of £1,125.7m up from £1,116.4m at the end of Q1 2023. Comparing the Fund’s performance against the benchmark over the quarter, the Fund had underperformed by 1%, returning 0.5% vs the target of 1.5%. Nevertheless, when focussing on performance over the last three years, the Fund had overperformed the benchmark by 0.5% which was said to be encouraging. The Fund’s passive global equity exposure was the main driver of positive return on an absolute basis, while the income and protection assets, on aggregate, detracted from the total Fund return. In addition, the cash held by the Fund increased over the period to £29.4m.

Focussing on the Fund’s underperforming assets, the Committee were informed that the managers of Multi-Asset Funds, which were Ruffer and Baillie Gifford in the case of the Brent Pension Fund, had discretion to invest in a wide range of assets. Recently, managers had moved to a defensive position, reducing allocations to equities and moving to bonds. At the time of the meeting, this approach had not resulted in performance gains, as bonds had fallen and equities had risen. Whilst the long-term performance of Ruffer was said to be more credible, the long-term performance of Baillie Gifford was considered disappointing. However, members were reassured that action had been taken to improve the performance of Baillie Gifford as London CIV had placed Baillie Gifford on ‘enhanced monitoring’ and confidence had been gained from recent conversations with Baillie Gifford.

In discussing the Fund’s asset allocations, the Committee noted that, following the agreement of the investment strategy review at the 20 February 2023 meeting, the Fund was in the process of selling circa 6% of its equities holdings to purchase bonds assets in order to rebalance the Fund’s risk vs return profile. Members were advised that, whilst bond values were currently in decline, the lower price made bonds a more attractive investment which was the rationale behind purchasing bonds. Regarding the Fund’s income assets, the Committee noted that the Fund was looking to broaden its investments in property, infrastructure and private debt, with the majority of these types of investments currently concentrated in the aforementioned Multi-Asset Funds managed by Ruffer and Baillie Gifford.

Concerning manager performance, Kenneth Taylor detailed that the LGIM Global Equity fund continued to provide positive returns, registering double digit performance over the last 12 months. Given its positive performance and sizeable allocation of circa 45%, the LGIM Global Equity Fund was the largest contributor to performance over the quarter. However, the performance of global equities was offset by the underperformance of both the LCIV Ruffer Multi-Asset Fund and the LCIV Ballie Gifford Multi-Asset Fund, despite their contrasting investment approaches. Furthermore, despite negative returns posted by  ...  view the full minutes text for item 6.

This report provides an update on the Pension Fund Annual Report and Accounts for the year ended 31 March 2023 and the draft Investment Strategy Statement (ISS).

George Patsalides (Finance Analyst, Brent Council) introduced a report that provided the Committee with an update on the Pension Fund Annual Report and Accounts for the year ended 31 March 2023 and the draft Investment Strategy Statement (ISS). At the time of the meeting, it was detailed that the audit fieldwork was substantially complete, with the auditors now working on completing their closing procedures and final reviews.

In addition to the standard audit, the Pension Fund had been subjected to a hot file review in 2022/23, which featured a detailed review of the accounts and audit working papers by a specialist team. The purpose of such a review was to identify any key issues which needed to be addressed before final completion. The review was positive for the Fund and did not result in any substantial changes, with only minor presentational changes to the accounts.

Members were also informed that the updated draft ISS was attached as Appendix 3 of the report, with the Council required to update the Statement every three years as per Regulation 7 of the Local Government Pension Fund (Management and Investment of Funds) Regulations 2016. Members noted that the updated ISS reflected the revised Investment Strategy agreed at the February 2023 meeting.

Following the conclusion of the update, the Chair welcomed questions from the Committee. Questions and responses are summarised below:

•         Regarding the overall decrease of the value of the Fund by £12 million compared to the end of 2021/22, members were informed that this was discussed at the previous Committee meeting in June in which it was explained that the majority of asset classes had struggled in 2022/23, with the exception of alternatives such as infrastructure assets. The Committee were reassured that the decrease in the overall value of the Fund was not a major worry, with the Fund significantly increasing in value over the past few years.

•         In response to a query on the recent poor performance of the Fund following the coronavirus pandemic, the Committee were advised that the economy had not been stable since 2019, with economic shocks caused by the pandemic, war in Ukraine and the ‘mini boom’ following lockdown which resulted in interest rates rising.

•         In discussing the small decrease in administration costs compared to 2021/22, members noted that this decrease was due to the completion of data cleanse projects. During 2020/21 and 2021/22, the data cleanse project was in phase 2 which was completed by 2022/23.

In thanking the Finance team for their work regarding the signing off of the Fund’s accounts and recognising that, although the Fund had performed better in recent years, the Fund was in a healthy position, the Committee RESOLVED to:

(1)      Note the draft accounts included as part of the annual report.

(2)      Note the draft Brent Pension Fund Annual Report 2022/23 which would be published as set out in paragraph 4.4 of the report.

This report relates to the consultation launched by the Department for Levelling Up, Housing and Communities (DLUHC) regarding the investments of the Local Government Pension Scheme (LGPS). The report covers the areas of asset pooling, levelling up, opportunities in private equity, investment consultancy services and the definition of investments.

Sawan Shah (Head of Pensions, Brent Council) presented the report, which outlined the Department for Levelling Up, Housing and Communities (DLUHC) consultation on proposals relating to the investments of the Local Government Pension Scheme (LGPS), covering the areas of asset pooling, levelling up, opportunities in private equity, investment consultancy services and the definition of investments. The Committee noted that the consultation closed prior to the meeting, on Monday 2 October, with officers submitting a formal response on behalf of the Council which had been circulated to all Sub-Committee members.

Regarding asset pooling, members were informed that the government had proposed to accelerate and expand pooling, with March 2025 being considered as the deadline for asset transition. Furthermore, it was also proposed to transition towards fewer pools to maximise benefits of scale, with pools operating as a single entity which acted on behalf of and in the sole interests of the partner funds. In addition to asset pooling, it was proposed to strengthen existing guidance on delegation of manager selection and strategy implementation, that administering authorities set a training policy for committee members and to report regularly on the training undertaken by committee members, to amend regulations to require funds to set a plan to invest up to 5% of assets in levelling up the UK and to require funds to invest 10% of their assets in private equity.

Overall, the Committee were advised that officers were generally supportive of increased pooling and recognised the benefits such as fee savings and greater access to certain asset classes that increased pooling offered. However, members noted that a number of concerns had been raised regarding the proposals, which were widely shared across local government and are summarised below:

•         The proposed deadline for the pooling of listed assets of March 2025 was considered challenging.

•         As it would be difficult to transfer passive or index-tracking assets by the proposed deadline without incurring significant transaction costs and higher ongoing charges, concerns were raised that these assets would not be classified as ‘pooled’.

•         It was believed that funds should retain responsibility for setting asset allocations and therefore any ambitions regarding asset allocations should be guidance rather than a requirement.

•         The resource burden surrounding the requirements for publishing plans/reporting was highlighted.

•         The ambition or requirement to invest 10% of asset allocation into private equity was not supported as many funds were fully funded and thus there was less need to take risk and the requirement contradicted other parts of the proposals which stated that funds would retain control of their investment strategies.

With the Chair opening the floor for contributions from the Committee, the following discussion took place:

•         The Chair outlined that at the London CIV Annual Conference held on 4 and 5 September 2023, the aforementioned concerns were widely shared, particularly concerning the requirement to invest in private equity and the implementation of pooling by March 2025.

•         Regarding next steps, the Committee were advised that funds were awaiting a response  ...  view the full minutes text for item 8.

This report updates the Committee on engagement activity undertaken by LAPFF (the Local Authority Pension Fund Forum) on behalf of the Fund.

Sawan Shah (Head of Pensions, Brent Council) presented a report that updated the Committee on engagement activity undertaken by the Local Authority Pension Fund Forum (LAPFF) on behalf of the Fund. It was explained that the partnership with LAPFF demonstrated the Fund’s commitment to Responsible Investment (RI) and utilising engagement as a way to achieve its objectives.

In summarising LAPFF’s engagement activity, the Committee noted the following:

•         LAPFF attended six AGMs and drafted over 50 climate related shareholders resolutions. LAPFF also issued 55 voting recommendations for environmental, social and governance (ESG) resolutions at mining companies and technology companies.

•         A voting alert was issued by LAPFF for Starbucks this year in support of a shareholder resolution calling for the company to uphold better practices on freedom of association and collective bargaining. This resolution was supported by 52 percent of the shareholder vote.

•         Oil and gas companies and banks were a further area of focus for LAPFF this AGM season. LAPFF supported the ‘Follow This’ resolutions at BP and Shell. The resolution received nearly 15 percent support and over 20 percent support respectively.

•         LAPFF raised concerns about HSBC’s approach to human rights and engaged extensively with Barclays.

•         LAPFF Vice Chair, Cllr Rob Chapman, attended the Drax AGM on the back of a LAPFF voting alert that raised significant concerns about the company’s climate practices and reporting in this area.

•         LAPFF had issued voting alerts largely supporting ESG shareholder resolutions filed at technology companies. In LAPFF’s experience, US companies did not have a culture of engaging with investors in the way that UK and Australian companies did. Therefore, while voting alerts were part of an engagement escalation strategy in most markets, LAPFF often issued voting alerts as an initial point of engagement. LAPFF continued to have concerns about corporate governance and social practices at large US technology companies.

•         This quarter LAPFF signed onto a letter to Toyota which called on the company to align its strategy and lobbying activity within 1.5 degrees of global warming scenario. LAPFF also met with the company as part of the collaborative engagement. The meeting covered proposed US regulations and the company’s likely position towards them.

•         LAPFF undertook engagement with National Grid to ensure that the company remained at the forefront of the energy transition. Detailed analysis revealed substantial issues – gaps in disclosure and transition plans, particularly on climate lobbying and a just transition. LAPFF’s leadership held meetings with the company, giving National Grid the chance to explain its concerns and suggest best practice. National Grid had acknowledged some of LAPFF’s comments and shortly before its AGM, the company announced that it would publish a comprehensive review of its climate lobbying activities, a key demand of LAPFF and other CA100+ members. National Grid had also publicised a policy proposal for addressing the delays in grid connection which was a welcomed development.

•         Overall, LAPFF engaged 84 companies during quarter 2.

With no further comments and in welcoming the update,  ...  view the full minutes text for item 9.

To receive an update from Pensions & Investment Research Consultants regarding the Fund’s performance as of March 2023.

As Karen Thrumble from PIRC had provided their apologies for the meeting, Sawan Shah (Head of Pensions, Brent Council) introduced the report, which outlined the findings of Pension and Investment Research Consultants regarding the Fund’s performance as of March 2023. The Committee noted that PIRC were a benchmarking company who compared the performance of the Brent Pension Fund to the performance of other local authority pension funds in the country, with approximately 60 out of 85 local authority funds included in the benchmarking.

In reviewing performance by asset class over the last year, members were advised that alternative investments, such as private equity, infrastructure and private debt, were the only assets to deliver positive returns. Furthermore, equity performance was flat, with most active managers failing to add value, bond performance was deeply negative, and property saw a strong decline in value.

Comparing the performance of funds across the country against their individual set benchmarks and their relative performance against over funds, it was detailed that three quarters of funds had underperformed relative to their strategic benchmark, which included Brent. However, only one London Fund had outperformed their benchmark and Brent performed second-best out of London funds across the previous year. Funds that had large investments in alternative assets, such as funds within LPPI and the Northern Pool, outperformed their benchmark due to the strong performance of alternative assets.

Members heard that the LGPS, as a whole, returned 8.4% per year over the last 20 years, with the sector outperforming inflation over the long-term. The positive performance was largely driven by equities, which contrasted the negative performance of bonds which had delivered a return below inflation over the last 10 years. In highlighting the recent poor performance of property, the Committee were informed that funds had largely invested in commercial property rather than residential property, which had performed poorly. Whilst the Brent Pension Fund had been historically undervalued in property, the Fund was awaiting an allocation in property as per the revised Investment Strategy.

In detailing the asset allocation across the whole sector, the Committee noted that funds had reallocated 12% of total assets from equities into alternatives over the last decade, with equities decreasing from 63% of assets in 2014 to 51% in 2023 and alternatives increasing from 8% of assets in 2014 to 19% of assets in 2023. In addition, 2016/17 was a pivotal year as funds moved from regional equities to global equities.

It was explained that over time funds had become more complex, with the average number of mandates per fund increasing from 7 in 2008 to 16 in 2023 and a general decline in passive management with an average of 16% of assets being managed passively in 2023, a decrease from 26% in 2018. It was stated that funds continued to believe in active management despite the evidence of poor returns, although Brent was an outlier with 57% of assets being managed passively which kept costs down and reduced risk.

In focussing on the performance of  ...  view the full minutes text for item 10.

To note the minutes of the Pension Board meeting held on 24 July 2023.

The Sub-Committee welcomed Mr David Ewart (Independent Chair - Pension Board) to the meeting to give an overview of the Pension Board’s last meeting. Members were informed that the role of the Pension Board was to assist the Sub-Committee in the efficient management of the Fund and in monitoring administration service quality for scheme members. The Board’s membership comprised of representation from both Scheme Members and Employers, in addition to Brent Council.

Regarding the July meeting, Mr Ewart explained that the majority of the meeting concerned the Pensions Administration Update, in which the Board considered the Pension Administration Performance Report. It was explained that administration performance had recently improved, although the Pension Board deemed that there was room for further improvement. In addition to reviewing administration performance, the Board considered the updated Communications and Administration Strategy, with members approving both documents. Furthermore, the Board reviewed the Pensions Risk Register, with Mr Ewart recommending that the Sub-Committee received the Risk Register for their information. Lastly, the Board considered the reports from the June Pension Fund Sub-Committee meeting, in which it was stated that the Board were in agreement with the Sub-Committee regarding their decision-making.

The Chair thanked Mr Ewart for the update provided and with no further issues raised, it was RESOLVED to note the minutes from the Pension Board held on 24 July 2023.

To consider the exclusion of the press and public from the remainder of the meeting as the remaining report to be considered contains the following category of exempt information as specified in Paragraph 3, Part 1 Schedule 12A of the Local Government Act 1972, namely:

“Information relating to the financial or business affairs of any particular person (including the authority holding that information)"

At this stage in the meeting the Chair advised that the Sub Committee needed to move into closed session to consider the final item on the agenda and it was therefore RESOLVED to exclude the press and public from the remainder of the meeting as the reports and appendices to be considered contained the following category of exempt information as specified in Paragraph 3, Schedule 12A of the Local Government Access to Information Act 1972, namely:

“Information relating to the financial or business affairs of any particular person (including the Authority holding that information).”

This report updates the Committee on recent developments regarding Brent Pension Fund investments held within the London CIV (LCIV).

George Patsalides (Finance Analyst, Brent Council) introduced the report, which updated the Committee on recent developments regarding Brent Pension Fund investments held within the London CIV. In this iteration of the London CIV Update, the Committee received the quarterly investment review for the quarter ending 31 June 2023. In addition to the quarterly investment review, members considered subjects such as the London CIV annual conference, the UK Housing Fund and potential fee savings. Furthermore, questions were answered regarding the use of AI, the pooling of assets and the Fund’s asset allocation targets.

As no further concerns were raised, the Committee RESOLVED to note the report.

Notice of items to be raised under this heading must be given in writing to the Head of Executive and Member Services or their representative before the meeting in accordance with Standing Order 60.

None.