Agenda item

A report of the Interim Director of Finance was presented to inform Members of 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 and currently had no investments in Bonds.  Discussions were held at the last Committee Meeting re investing in bonds.  Although there was no directive to invest at this time, the Advisers had since indicated the levels at which they felt investment would be appropriate.   Officers were monitoring the situation, when the levels came into range there would be further discussion with the advisers.   Current thinking was that an investment via the Border to Coast Sterling Index Linked Bond Fund would be the most appropriate vehicle.

 

At the June 2018 Committee it was agreed that a maximum level of 20% of the Fund would be held in cash. The cash level at the end of March 2023 was 6.66%.

 

Investment in direct property would continue on an opportunistic basis where the property had good covenant, yield and lease terms.  There had been no purchases or sales during this period.

 

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. £83 million was invested during this quarter.

 

Appendix A to the submitted report detailed transactions for the period 1 January 2023 to 31 March 2023. There were net purchases of £84 million in the period, compared to net purchase of £144 million in the previous reporting period.

 

As at 31 December 2022, the Fund had £335 million invested with approved counterparties.  This was a decrease of £79 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 31 March 2023, including cash, was £5,060 million, compared with the last reported valuation as at 31 December 2022, of £4,953 million.

 

In response to a question from a Member of the Committee, the Head of Pensions Governance and Investments explained that the Actuary had set the return target for the Fund at 4.52%, which equated to around £50 million per quarter.  It was emphasised this was a long term target.  Since the last valuation the fund had remained fairly static but during the last three years had grown from £4 to £5 billion and exceeded the target massively.

 

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 31 March 2023 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 Strategic 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 might 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 of the submitted report.

 

At the end of 31 December 2022 the Fund’s equity weighting was 61.23% compared to 60.2% at the end of December 2022. As cash levels were reducing the team were looking at cashflow projections to determine if, and when, equity redemptions might be required.

 

A summary of equity returns for the quarter 1 January to 31 March 2023 was shown at paragraph 8.4 of the submitted report.

 

To date the Fund had agreed three Local Investments:

 

•           GB Bank – Initial agreement of £20m called in full in September 2020.   An             additional £6.5m was paid to the bank in December 2021.  Further payment             of £13.5m was made in August as the bank received regulatory approval to             exit mobilisation.

 

•           Ethical Housing Company - £5m investment of which £765k has been called.

 

•           Waste Knot - £10m investment agreed at the June 2021 Committee, payment             was made in full in December 2021.

 

As at 31 May 2023 total commitments to private equity, infrastructure, other alternatives and other debt were approaching £1,927 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.