Minutes:
A
report of the Director of Finance was presented to inform Members of the
Teesside Pension Board of the revision to the Pension Fund’s strategic asset
allocation, as agreed at the Pension Fund Committee meeting held on 10 March
2021.
The
Pension Fund’s target strategic asset allocation was set out in its Investment
Strategy Statement which was last updated in February 2019.
The
Pension Fund had made slow progress towards its strategic asset allocation, for
several reasons: the unattractiveness of bonds, the necessarily slow increase
in investments in private equity, infrastructure and other alternatives, and
the difficulty in significantly increasing the direct property portfolio. No progress had been made to date in reducing
the Pension Fund’s equity exposure. This was despite a phased sell-off of £125
million of US equities over the 15 months to 31 December 2020.
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 worked 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 and Board to judge more quickly whether
appropriate progress was being made in reallocating the Pension Fund’s assets.
The
revised strategic asset allocation, approved by the Pension Fund Committee at
its 10 March 2021 meeting, included the
following features:
·
A significantly
lower allocation to UK equities – this partly reflected the fact the UK market
was increasingly concentrated on a number of sectors such as consumer staples,
financials and commodities, meaning the market’s performance was to some extent
linked to the performance of those sectors. It also reflects a recognition that
future growth may be limited in the UK compared to other global regions.
·
A recognition
that infrastructure investments could be classed as ‘protection’ rather than
‘growth’ assets – this acknowledged the long-term secure nature of the types of
infrastructure the Pension Fund invested in.
·
Property debt was
also reclassified as part of ‘other debt’ as a ‘protection’ asset, and so
separated from property which remained classified as a ‘growth’ asset.
·
A short/medium
term target of 65% equities by 31 March 2022. This might be challenging and
would require careful implementation. The longer term equity target increased
slightly from 50% to 55%.
Following
the Committee’s agreement to the revised strategic asset allocation, the following
steps were underway:
·
An updated
Investment Strategy Statement (ISS) would be circulated to Pension Fund
employers for comment. Any substantive
changes agreed to the revised ISS following the consultation would be presented
to the next Committee meeting. If there
were no changes the ISS would be published in due course.
·
Officers would
work to implement the revised strategic asset allocation and report back to
future Committee meetings on progress.
AGREED that the information provided was received and noted.
Supporting documents: