Agenda item

A report of the Director of Finance was presented to ask Members to agree to a revision to the Pension Fund’s strategic asset allocation and for a short consultation to be carried out with employers in the Fund to explain the purpose of the proposed changes.

The Pension Fund’s target strategic asset allocation was set out in its Investment Strategy Statement (ISS) which was last updated in February 2019. The table at 4.1 of the submitted report showed the strategic asset allocation alongside the actual allocation of the Pension Fund at the end of the quarter the allocation was published (31 March 2019),  and at the end of the last quarter (31 December 2020). 

The ISS highlighted that the target allocation was a long term goal, and that while bonds continue to be viewed as expensive, the allocation to equities was likely to be towards the high end of the range.

While the Pension Fund remained heavily invested in equities its assets were subject to significant volatility. While this could be tolerated to a certain extent given the Pension Fund’s long investment time horizon, this volatility could cause issues for the Pension Fund’s employers if the triennial valuation coincided with a low point in valuations.

Officers had been working with the Pension Fund’s investment advisors to review the strategic asset allocation, with a view to setting a long-term and a short/ medium term target for asset allocation. The latter target would allow the Committee to judge more quickly whether appropriate progress was being made in reallocating the Pension Fund’s assets.

Details of the proposed revised strategic asset allocation was detailed at paragraph 6.4 of the submitted report.    The overall split between growth and protection assets would be 75% to 25% in the long term, with UK Equities 10%, Overseas Equities 45%, Property 10%, Private Equity 5%, Other Alternatives 5%.   Protection assets – bonds, other debt, and cash - would be combined together.   Infrastructure would be reclassified as a protection asset to properly reflect the features of that asset and the fact that it would provide a protection asset in investment terms.

Any substantive changes agreed to the revised ISS following the consultation would be brought to the next Committee meeting.  If there were no such changes the ISS would be published in due course.

It was noted that some of the targets were challenging, however the Head of Pensions Governance and Investment confirmed that he felt that they were reasonable.    In relation to local investments, it was explained that the Committee had agreed to invest up to 5%, it was not a separate line on the strategic asset allocation.   Any local investment would be slotted into the relevant category.  However, the Committee would be kept informed of the percentage of investment actually allocated to local investments.

ORDERED as follows:

1. The information provided was received and noted.
2. The table in paragraph 6.4 of the submitted report would be incorporated into an updated ISS and circulated to Pension Fund employers for comment.
3. Any substantive changes agreed to the revised ISS following the consultation would be brought to the next Committee meeting. 
4. If there were no substantive changes to report back, the revised ISS would be published.

5.     Officers would work to implement the revised strategic asset allocation and would report back to future Committee meetings on progress.