Agenda item

A report of the Director of Finance was presented to inform Members of the Teesside Pension Fund Committee how the Investment Advisors' recommendations were being implemented. 

A detailed report on the transactions undertaken to demonstrate the implementation of the Investment Advice recommendations and the Fund's valuation was included, as well as a report on the treasury management of the Fund's cash balances and the latest Forward Investment Programme.

The Fund continued to favour growth assets over protection assets.  For the period under discussion, bonds were still not considered value for the Fund, further comment was made under paragraph 8.5 of the submitted report in relation to future investments.

At the June 2018 Committee it was agreed that a maximum level of 20% of the Fund would be held in cash. Cash levels at the end of September 2022 were 11.51%.

Investment in direct property would continue where the property had good covenant, yield and lease terms.   The Fund purchased a retail property in London – Zara, Covent Garden – at a purchase prices of £32 million. 

Investment in Alternatives, such as infrastructure and private equity, offered the Fund diversification from equities and bonds. They came with additional risks of being illiquid, traditionally had costly management fees and investing capital could be a slow process. The Fund was underweight its customised benchmark and, providing suitable investment opportunities were available, would look to increase its allocation to this asset class up to the customised benchmark level. £110 million was invested in the quarter.

Appendix A to the submitted report detailed transactions for the period 1 July 2022 to 30 September 2022. There were net purchases of £162 million in the period, compared to net purchases of £131 million in the previous reporting period.

As at 30 September 2022, the Fund had £604 million invested with approved counterparties. This was a decrease of £120 million over the last quarter. Appendix B to the submitted report showed the maturity profile of cash invested as well as the average rate of interest obtained on the investments for each time period.

The total value of all investments as at 30 September 2022, including cash, was £4,812 million, compared with the last reported valuation as at 31 June 2022, of £4,868 million.

A summary analysis of the valuation, attached at Appendix C to the submitted report, showed the Fund's percentage weightings in the various asset classes as at 30 September 2022 compared with the Fund's customised benchmark.

The Forward Investment Programme provided commentary on activity in the current quarter and looked ahead to the next three to five years. Details of the Strategic Asset Allocation agreed at the March 2021 Pension Fund Committee were shown at paragraph 8.2 of the submitted report.

It had been agreed by the Pension Fund Advisers and Fund Officers that there would be no changes to the current Asset Allocation following the Actuarial Valuation.  However it was acknowledged that work would continue to ensure the Fund’s assets were more closely aligned to the strategic asset allocation.  It was also acknowledged that there may be times in the short to medium term where the strategic allocation to a particular asset class was above the long term target – in any such case it should remain within the maximum level set out in the table at paragraph 8.2.

W Bourne highlighted that currently the Fund had chosen to stay at the upper end of the risk level in order to keep contributions stable.  If the Fund opted for lower risk investments, the contributions would have to rise. 

At the end of September 2022 the Fund’s equity weighting was 58.3% compared to 58.1% at the end of June 2022. There were no plans to purchase or sell equities at this time. A summary of equity returns for the quarter 1 July 2022 to 30 September 2022 was shown at paragraph 8.3 of the submitted report.

The Fund had no investments in bonds at this time, the level of cash invested is 11.51%.  Discussions were held at the last Committee Meeting regarding investing in bonds.  Although there was no directive to invest at that time, the Advisers had since indicated the levels at which they felt  investment would be appropriate.   Officers were monitoring the situation, and when the levels came into range would have further discussion with the Advisers.  The current thinking was that an investment via the Border to Coast Sterling Index Linked Bond Fund would be the most appropriate vehicle.

To date the Fund had agreed three Local Investments.  At the October Committee meeting it was agreed that a due diligence exercise would be carried out on a proposed Local Investment from FW Capital.  The intention was to bring a report to the Committee in March 2023 for a decision.

As at 30 November 2022 total commitments to private equity, infrastructure, other alternatives and other debt were approaching £1,655 million and a breakdown of that figure was included at paragraph 8.8 of the submitted report.

ORDERED that the report was received and noted