Agenda item

A report of the Director of Finance was presented to provide Members with quarterly investment reports in respect of funds invested externally with Border to Coast Pensions Partnership Limited (Border to Coast) and with State Street Global Advisers (State Street).

As at 30 June 2022 the Fund had investments in the Border to Coast UK Listed Equity, Overseas Developed Markets and Emerging Markets Equity Funds.   For all three sub funds the return target was expected to be delivered over rolling 3 year periods, before calculation of the management fee.

The Fund also had investments in the Border to Coast Private Equity sub-fund and the Border to Coast Infrastructure sub-fund.  To date, total commitments of £650 million had been made to these sub-funds (£350m to infrastructure and £300m to private equity) with around 26% of this commitment invested so far.  These investments were not reflected within the Border to Coast report attached at Appendix A to the submitted report but were referenced in the Border to Coast presentation at Agenda Item 8 of the meeting.

The Border to Coast report showed the market value of the portfolio as at 30 June 2022 and the investment performance over the preceding quarter, year, and since the Fund’s investments began.  Border to Coast had also provided additional information within an appendix to that report in relation to the Overseas Developed Markets Equity Fund, giving a breakdown of key drivers of and detractors from performance in relation to each of its four regional elements. Market background information and an update of some news items related to Border to Coast were also included.  Border to Coast’s UK Listed Equity Fund had achieved returns of 0.94% above benchmark over the last year, nearly meeting its 1% overachievement targets.  The Overseas Developed Markets Equity Fund had achieved returns of 2.10% above benchmark over the last year, comfortably above its 1% overachievement target, albeit in a falling market. Since inception, both Funds had delivered performance roughly in line with their targets.   The performance of the Emerging Markets Equity Fund had been below benchmark throughout most of the period of the Fund’s investment – performance over quarter to 30 June 2022 was slightly above benchmark, but below target, with the internal team delivering better results that quarter than the external China managers due to a mixture of sector and stock selection.

State Street had a passive global equity portfolio invested across four different region tracking indices appropriate to each region. The State Street report (attached at Appendix B to the submitted report) showed the market value of the State Street passive equity portfolio and the proportions invested in each region as at 30 June 2022.

State Street continued to include additional information with their report this quarter, giving details of how the portfolio compared to the benchmark in terms of environmental, social and governance factors including separate sections on climate and stewardship issues. As the State Street investments were passive and closely tracked the appropriate regional equity indices, the portfolio’s rating in these terms closely matched the benchmark indices ratings.

The latest report showed the performance of the State Street funds against revised indices – excluding controversies (UN Global Compact violators) and excluding companies that manufactured controversial weapons. As expected for a passive fund, performance closely matched the performance of the respective indices.

Border to Coast had been working with its reporting providers to develop reporting which covers the Environmental Social and Governance (ESG) issues and impact of the investments it managed, together with an assessment of the carbon exposure of these investments.  This was easier with some asset classes than others, and Border to Coast had initially focussed on reporting on listed equities as this was the asset class where most information was available and this type of reporting was more advanced.

Appendix C to the submitted report contained the latest available ESG and carbon exposure in relation to the three Border to Coast listed equity sub-funds the Fund invested in: UK Listed Equity, Overseas Developed Markets Equity and Emerging Markets Equity.   Amongst other information, the reports included information on the highest and lowest ESG-rated companies within those Border to Coast sub funds, together with an analysis of the carbon exposure of the sub funds on a number of metrics.  The sub funds’ ESG position and carbon exposure was also compared to benchmarks representing the ‘average’ rating across the investment universe of that particular benchmark.

ORDERED that the report was received and noted.