Agenda item

To receive the Brent Pension Fund H2 2022-23 Investment Monitoring Report.

James Glasgow (Senior Investment Analyst, Hymans Robertson LLP) introduced the report, which outlined the performance of the Brent Pension Fund during the second half of 2022.

In presenting the report, the committee noted the following:

·       The Fund’s assets returned 1.7% over the 6 months to 31 December 2022, outperforming the aggregate target return by 1.3%. Over the previous 12 months, the Fund’s assets returned -7.6%, however, this was in line with the benchmark. On a 3 year basis the Fund outperformed the benchmark by 0.5%, returning 3.8% compared to the 3.3% benchmark. Overall, the Fund posted positive returns over the last 6 months of 2022, ending the period with a valuation of £1,072.1m, which was a slight increase from £1,055.4m at the end of Q2 2022.

·       All listed equities ended 2022 performing positively, although private equities returned negatively due to lagged valuations. The volatility of the gilt market resulted in the asset underperforming by 40% with Property also highlighted as underperforming.

·       Amid rising interest rates and inflation, global growth slowed in the second half of 2022 and forecasts for growth in 2023 saw sharp downwards revisions. While recent outturns had shown an unexpected resilience in the major economies, economic data pointed to a relatively weak outlook in 2023.

·       Ongoing re-evaluation of inflation and interest rates saw global sovereign bond yields rise. The UK 10-year yield rose 1.4% p.a., to 3.7% p.a., while equivalent US and German yields rose 0.9% p.a. and 1.2% p.a., to 3.9% p.a. and 2.6% p.a., respectively.

·       Regarding asset allocation, the Fund was broadly in line with the interim target allocations for growth and cash, whist it was over/underweight in terms of income and protection assets respectively. The LCIV infrastructure and private debt funds remained in their early phases. It was therefore expected that the Fund’s commitments continued to be drawn down over 2022/23. The second tranche of the investment into the BlackRock Low Carbon Fund was completed on 15 December 2022, taking the total proportion closer to its 3% benchmark allocation.

·       Considering manager performance, the largest contributor to performance over the period was LGIM’s Global Equity fund, given its positive performance and its sizeable allocation of circa 43%. The biggest detractor from performance over the second half of 2022 was BlackRock’s UK Over 15 years Gilts, given its unfavourable return despite its relatively small allocation.

·       Despite large negative returns posted by the Capital Dynamics Infrastructure Fund, this mandate had an allocation of <2% of the total Fund, hence did not detract materially from the Fund’s overall performance. Similarly, despite underperformance from the property funds managed by Fidelity and UBS, their small allocations of 1.3% and 1.1% respectively meant they did not detract significantly from the Fund’s total performance.

·       Focussing on the LCIV Baillie Gifford Multi-Asset fund, the fund returned - 1.8% over the second half of 2022, underperforming its benchmark by 3.2%. The fund had fallen further behind its longer term targets on a relative basis and absolute basis. Given the poor performance over the period, Ballie Gifford had taken some strategic actions to address issues within underperforming asset classes. Baillie Gifford remained focused on their longer-term trends and stressed the importance of not losing sight of long term goals amidst the current volatile market.

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

·       Regarding the investment in BlackRock’s UK Over 15 years Gilts, the Committee noted that the holding was passive, tracking market conditions exactly. The returns, albeit negative, were in line with the market, with BlackRock not stylistically contributing to the negative performance.

As no further issues were raised, the Sub Committee again welcomed the update provided and RESOLVED to note the report.