Agenda item

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 the Brent Pension Fund, the Fund returned -2.6%, which ranked in the 38th percentile. The top three funds were in the LPPI pool, with London funds generally performing poorly. Moreover, the largest funds performed the best, with 6 out of the top 7 performers having a value of over £5 billion, resulting in the median return over the year being -3.3%, lower than the average (mean) return of -1.6%, with the average (mean) return being skewed due to the overperformance of large funds. Members were advised that the Brent Pension Fund had a higher allocation to equities and diversified growth compared to the sector average, although the Fund had a lower exposure to bond, alternatives and property. However, the Fund’s asset allocation did not have a major impact on performance, with a broadly neutral impact on relative performance.

In terms of returns, the fund had a below average return in most asset classes, with the poor return from bonds having the largest impact on the Fund (the Fund ranked in the bottom decile comparative to other funds bonds holdings), suffering from holding long-dated linked securities. Furthermore, the long-term performance of the Fund was detailed, with the Fund performing close to the average over the past 5 years, ranked in the 48th percentile. The Fund’s performance over the past 5 years was a vast improvement over the performance of the Fund over the last 20 years, with the Fund sitting in the bottom percentile of funds over the previous two decades. The main driver of the strong recent performance had been equity selection and the positive performance of equities. Nevertheless, the high commitment to diversified growth had been a detriment to the Fund’s overall performance.

Having thanked Sawan Shah for the overview, the Chair invited questions and comments from members, which are summarised below:

•         Given the poor performance of bonds over the previous decade, members raised concerns regarding the Fund’s intention to invest further into bonds and queried whether there was any evidence to suggest that bonds were now performing better. In response, the Committee were advised that bonds had been at an all-time low since the 2008 financial crash and the low interest rate landscape that the recession created. However, recently the performance of bonds had improved due to rising interest and yields were approximately 5% – 5.5% compared to 0.5% during the pandemic. Overall, the poor performance of bonds over the previous decade was attributed to historically low interest rates following the 2008 financial crash.

With no further questions or comments, the Chair thanked officers for their work in delivering the overview and the Committee RESOLVED to note the update.