Agenda item

To receive the Brent Pension Fund Q2 2022 Investment Monitoring Report.

Kenneth Taylor (Hymans Robertson LLP) introduced the report, which outlined the performance of the Brent Pension Fund during Q2 2022.

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

·            In view of recent market volatility, the Committee were reassured that public sector pension schemes had not been as adversely impacted compared to private sector schemes.  Members were advised that this was as a result of the longer-term scope of public sector investments meaning the Fund was better protected from short-term economic conditions.

·            A high-level summary of the performance of the Fund was then presented to the Committee, with the key points highlighted below:

Ø   The Fund had posted negative returns over the quarter, ending the period with a valuation of £1,054.3m, down from £1,127.6m at the end of Q1 2022.  This remained due to a number of ongoing global factors and market volatility as a result of the challenging economic position, rising inflation and interest rates.

Ø   The majority of asset classes had struggled in Q2 2022 amidst such a challenging environment. Index-tracking mandates with LGIM (global equities) and BlackRock (gilts) contributed heavily to the negative absolute return whilst the LCIV Baillie Gifford multi-asset fund, the LCIV emerging markets fund and the LCIV multiasset credit (MAC) fund all drove relative underperformance versus the benchmark.

Ø   A positive performer was the Fund’s property investment with Fidelity although at c1.5% of assets this had little offsetting effect on the overall performance.

·            In Q3 2022 the Fund would seek to complete planned investment in the BlackRock Low Carbon equity fund whilst continuing to explore attractive secondary market opportunities within the property space consistent with the decision taken at the October 2021 Committee meeting.

·            Regarding the Fund’s asset allocations, it was confirmed the Fund remained broadly in line with the interim and long-term target allocations for growth and cash.

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 was negative during the current monitoring period on both an absolute and relative basis. This had resulted in performance over the 12 month period falling slightly behind benchmark although the Sub-Committee was advised that relative performance over a 3 year period remained positive.

·            The main issue highlighted in relation to performance over the second quarter of 2022 was LGIM’s Global Equity Fund, given its sizeable allocation of Fund assets and unfavourable return in both absolute and relative terms.

·            It was noted that UK equity markets (despite a negative return) had continued to outperform global markets with Capital Dynamics Private Equity mandate as the only positive performer in terms of growth assets.  Whilst returns achieved by Ruffer remained strong those being achieved by Ballie Gifford had fallen behind in relative terms.  It was noted, however, noted that the Ruffer Multi Asset Fund had adopted a more defensive position to deal with market volatility, which was important for the Fund, to ensure diversification of assets

·            The diversifying nature of the LCIV and Alinda Infrastructure funds had meant that these sub-funds contributed positively over the quarter.

·            A new traffic light system has been introduced to review the performance of fund managers, which reflected the long-term performance of each mandate. The only manager rated as ‘red’ (significant underperformance) had been the Capital Dynamics Infrastructure Fund, although it was noted that the fund only comprised 0.7% of Brent’s Pension Fund, so the impact was minimal.

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

·            Clarification was requested regarding the absence of Responsible Investment (RI) ratings for some fund managers. The Committee were advised that, for resource reasons, a rating was not given to managers whose assets only comprised a small percentage of the overall Fund.  It was also noted that LCIV were responsible for rating their own funds.

·            The Committee were keen to progress discussions around the use of bond investments, in order to reach the required investment target.

·            Concerns were raised relating to the performance rating and carbon output of the LCIV Baillie Gifford Multi Asset Fund. The Committee were advised that the performance of Baillie Gifford’s investments had been adversely impacted by the rise in interest rates and a more “risk based” approach, resulting in more cyclical returns being achieved.  Expected timescales for more positive returns could not be given at this stage. On carbon output, members were advised that Baillie Gifford valued engagement, opting to influence high carbon companies to change their practices. The possibility of influencing LCIV to switch to Baillie Gifford’s lower carbon alternative fund was put forward as a potential action.

·            The Committee noted that BlackRock gilts were also currently underperforming due to rising interest rates.

·            Regarding property class investments, the Committee were advised that an LCIV investment recommendation was due to be finalised in early 2023. It was also noted that the monitoring report covered the period to the end of June 2022 and as a result, did not reflect the property holding actioned in July 2022. This would be included as part of the next Investment Monitoring update for the next Sub-Committee.

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.