Agenda item

To receive the Brent Pension Fund Q3 2021 Investment Monitoring Report.

Kenneth Taylor (Hymans Robertson LLP Investment Consultant) introduced a report which outlined the performance of Brent Pension Fund during Q3 2021.

In presenting the report, the following were highlighted as key strategic points:

·                In addition to the usual figures which were presented to the Committee in the report, the report also contained information for the first time as part of the Funds evolving Responsible Investment agenda on climate metrics within its investment strategy.  Noting the Funds commitment to disclosing and monitoring these metrics, members were advised this aspect of the report would continue to be developed over time, in order to indicate how well the Fund was performing in relation to Environmental, Social and Governance (ESG) issues.

·                The Fund had added £80m to its portfolio over this period, representing a combined return against assets of 6% (ahead of the benchmark return of 5.1%).

·                The main driver of returns were the Fund’s growth holdings with LGIM’s global equity mandate the primary contributor in monetary terms and the Global and Private Equity Funds also performing well.  Within the Fund’s Income holdings the Baillie Gifford multi-asset fund had also produced strong performance.

·                The Fund had also now made its first investment in the BlackRock Low Carbon equity fund and the LCIV private debt fund.  In addition, £15m had also been invested in the Fidelity UK Property fund consistent with the previous decision taken by the Committee with both investments to be gradually increased over the next few years.

·                Emerging market equities were noted as delivering a lower rate of return, as well as the Capital Dynamics Infrastructure Fund and Alinda Infrastructure Fund, although it was noted these had not had a significant bearing on the Fund overall, totalling 0.5% of the Fund’s assets.

·                The Capital Dynamics Infrastructure Fund and Alinda Infrastructure Fund were identified as ‘legacy’ assets involving a longer term strategy to wind them down and eventually replace with other higher performing funds such as the London CIV and other renewable assets.

·                Members were updated on the overall asset allocation with it noted that the Fund was broadly in line with its interim target allocations for growth and income assets, cash and underweight protection assets.

An overview was then provided in relation to manager performance of the various funds, with the following noted:

·                Members were advised that total Fund return remained strong and positive on both an absolute and relative basis with longer term performance also ahead of performance.

·                Emerging market equities had however delivered a negative return over the quarter, with both sector allocation and stock selection detracting from performance along with financial stocks driven by China and India’s zero tolerance Covid-19 policies.

Members were then provided with a summary of the climate risk analysis and carbon intensity by Fund Managers. Key issues highlighted were as follows:

·                As a starting point the Fund was reporting in line with information produced by its Pool, the London CIV.  The Fund would, however, seek to evolve its climate risk monitoring process by monitoring against further metrics.  Key metrics were currently focussed around weighted average carbon intensity and Fossil Fuel exposure with the information covered capturing approx. 88% of the Fund’s assets, as at 31 December 21.  Members were assured this provided an accurate and reliable level of data.

·                Having noted the relative carbon intensity for each Fund as a % of assets members were advised that despite representing only 15% of Fund assets the Baillie Gifford Diversified Growth fund was responsible for 29% of the Fund’s total carbon intensity. Whilst the LGIM Global Equity Fund represented the highest % of carbon intensity (42%) it was also recognised that this represented 53% of the Fund’s assets.  Focussing on these areas, members were advised of the specific investment profile relating to the Diversified Growth Fund, which had impacted on their carbon intensity rating including investment in the German energy company RWE. It was noted that as part of the London CIV, progress would continue to be monitored in terms of the carbon intensity of that fund.

·                In terms of fossil fuel exposure, it was updated that the Fund had a 6.2% exposure to fossil fuels, in comparison to the global average of 7.3%, meaning that the Brent Fund was lower than the global average, though the Fund was still looking to decrease this level further.

The Chair thanked Hymans Robertson LLP for their presentation and members were then invited to ask questions, with the responses summarised below:

·                Further clarification was sought on the Fund’s position in relation to property investment, with members advised this had been undertaken in line with the decision made at the previous Sub Committee meeting to approve a strategic investment approach towards property.

·                In response to further details being requested on the approach in terms of investment in the BlackRock UK Gilts fund, members were advised that gilt investment generally provided lower risk assets with BlackRock appointed to oversee the Fund’s bond allocation.  The Fund was a passively managed mandate.  Over the latest monitoring period the Fund had returned 2.6% which had offset negative returns experienced in Q3.

·                In response to a query regarding performance of the BlackRock World Low Carbon fund it was confirmed that the fund had returned a positive performance of 5.1% since inception in September 21, outperforming its benchmark for the period by 0.1%.  It was noted that this investment would continue to be built up over time.

·                In relation to the Net-Zero target commitments of companies which the Fund had invested in, members were advised of the measures available to engage with those companies in order to drive transition and ensure they were aligned with Brent’s own targets moving forward linked with development and delivery of the Fund’s own Net Zero Transition Roadmap.

Members welcomed the update provided and with no further issues raised thanked Hymans Robertson LLP for their presentation.  It was RESOLVED to note the report.