Agenda item

This report provides an update on the Investment Strategy Review.

Sawan Shah (Head of Finance, Pensions and Housing Companies) introduced the report from the Corporate Director Finance & Resources, which the Board was advised provided a review of the Fund’s investment strategy, carried out by the Fund’s investment advisors and undertaken in line with best practice at the end of the 2025 valuation cycle.

Members noted that the purpose of the review had been to assess whether the current investment strategy remained appropriate and to consider alternative strategies that might better meet the Fund’s strategic objectives. The Board was advised that this was one of the most significant pieces of work considered by the Sub Committee, given that the vast majority of investment performance would be determined by the overall asset allocation rather than by which individual managers were appointed.

Key points from the report were summarised as follows:

·   Given the improved funding level arising from the 2025 valuation, the Strategy had reflected the recommendation made at the October Pension Fund Sub Committee that the Fund should reduce its overall risk exposure. The broad allocation to three main areas – growth, income, and protection – was supported.

·   Within the growth allocation, it had been recommended to reduce the long-term exposure to growth assets while introducing an allocation to private equity, partly in anticipation of the Government’s Fit for the Future proposals requiring funds to allocate assets towards local investment.

·   Within the income allocation, the strategy review recommended increasing the total allocation to 32.5%. Private debt allocation was broadly maintained, with property and infrastructure allocations both targeted at 10%. The multi-asset portfolio allocation was recommended to reduce to 5%, a change that could be implemented, in part, promptly.

·   On the protection side, it was recommended to increase the allocation to both fixed interest gilts and the multi-asset credit fund to 20%, largely funded through the rebalancing of the multi-asset allocation.

·   A significant difference from the previous strategy review was that, in light of the Government’s Fit for Future reforms, the Fund would no longer implement the strategy directly.  Under the requirements relating to pooling arrangements, responsibility for delivery and implementation of the new investment strategy would rest with the London CIV. Given that a number of the increases in allocation were to private market assets such as infrastructure, property and private debt, which take time to build up, the report proposed an interim target allocation to work towards in the meantime.

In response to a question from the Chair on whether the maturing nature of the Fund was influencing the strategy, the Board was advised that this was indeed a factor. As a sector, LGPS pension funds were better funded than at any previous valuation, meaning that most funds were seeing reductions to employer contribution rates and therefore did not need to take as much investment risk. Alongside this, as a maturing fund with more pensioner members drawing benefits than active members paying in, and with employer contributions reducing, there was a greater need to generate income from assets. The strategy therefore reflected a gradual move from growth assets towards income-generating assets with contractual income streams.

In noting that the report had been subject to detailed review and approval at the Brent Pension Fund Sub Committee, the Board expressed support for the approach outlined and RESOLVED to note the report.