Agenda item

To receive the Brent Pension Fund Q2 2024 Investment Monitoring Report.

(Agenda republished to include the attached report on 3 October 2024)

Kenneth Taylor (Hymans Robertson) introduced the report, which outlined the performance of the Brent Pension Fund over the second quarter of 2024-25.  In introducing the report members were advised that the Fund had posted a positive return with a valuation of £1,279.2m up from £1,259.7m at the end of Q1 with the assets returning 1.4% over the monitoring period.  The main driver of the positive return had been the Fund’s passive global equity exposure on an absolute basis, along with its exposure to UK and emerging market equities. Within the income assets, the Fund’s private debt, property and multi-asset exposure contributed to performance on an absolute basis. The main detractor from performance was the Fund’s government bond exposure, which fell in value as gilt yields rose over the quarter.  In noting the wider economic context and update provided on the market background in which the Fund was operating, members were advised of the ongoing challenges and impact arising from uncertainty relating to inflation and fluctuation in interest rates.

The Fund, on a relative basis, had underperformed its benchmark by 0.5% and was behind its composite benchmark over the past 12 months and over 3 years with members noting the current target and asset allocations exposure on an interim and long term basis across growth, income/diversification and protection plus cash and reflecting the Funds Investment and diversification Strategy.  This included not only a focus on Global Equity but also Multi Asset, Property and Infrastructure investment allocations which were aimed at reducing volatility.  In terms of asset allocation, members were advised that following approval of the partial sale of the LCIV Baillie Gifford Multi-asset fund the first tranche of £33m had been disinvested, with £18m invested in the LCIV JP Morgan Emerging Markets Fund and £15m held in cash.  Other transaction activity had included the first commitment to the London CIV UK Housing Fund.

In terms of the funding level, this had been estimated (as at 30 June 2024) to be 123%.  This represented an increase from 111% in Q3 2022 with the funding level having remained relatively consistent over the previous 12 month period.

Kenneth Taylor then moved on to provide an outline of performance relating to Fund Managers.  Members were advised that Global equities continued to provide positive returns, returning 2.2% over Q2 and maintaining double-digit performance over the last 12 months and 3 years. UK equities had also outperformed global equities for the first time in recent months, returning 3.7% over the quarter.  Whilst the Capital Dynamics infrastructure mandate had posted negative returns over the period it was noted this allocation was in run down and represented a small allocation within the Fund.  Yield volatility also remained during Q2 with the BlackRock gilts mandate having fallen in value over the quarter as gilts yields rose compared to Q1 levels.  In contrast, credit markets continued to perform well resulting in positive performance from the LCIV MAC fund with the property market also having had a positive quarter on an absolute basis, although this still lagged benchmark over the past 12 months.  Details were also provided on each mandate’s contribution to the Fund’s absolute performance over the second quarter of 2024, according to their allocation.  The largest contributor to performance over the period remained LGIM’s Global Equity fund, given its positive performance and its allocation of c.41%.  The Fund also saw positive contributions to performance from the LGIM UK Equity Fund, LCIV JP Morgan Emerging Markets Fund, BlackRock World Low Carbon Fund, and LCIV Baillie Gifford Multi-Asset, Infrastructure and MAC Funds.  The main detractor from performance was the BlackRock UK Gilts Fund, making up 9% of the Fund’s total assets.  Despite negative returns posted by the Capital Dynamics Infrastructure Fund, members were assured this mandate had a relatively small allocation of 0.2%, and had not therefore detracted materially from the Fund’s overall performance.

As a further update, members were also advised that since quarter end, one of the Fund Managers had been exploring liquidity options for their private equity mandates, on which a separate report had been provided for the Committee’s consideration (Item 14) with LCIV having also placed its emerging markets equities fund under enhanced monitoring due to ongoing underperformance and a further review scheduled for the end of October.

Following the presentation of the report, the Chair invited members to raise any questions or concerns, with queries and responses summarised below:

·             In response to a query regarding the role of LCIV, members were advised that the Brent Pension Fund, alongside all the London Borough funds, was a member of the London Collective Investment Vehicle (LCIV), as one of 8 national asset pools that had been set up to pool Fund investments through a series of investments managed through various Fund Managers, designed to maximise the returns available.

Members welcomed the report and, with no further issues raised, thanked Kenneth Taylor for his presentation and RESOLVED to note the report.