Agenda item

To receive a paper outlining the process followed to produce the draft Investment Strategy Statement (ISS). Officers aim to make the actual ISS available before the meeting.

The Chairman outlined the Board’s responsibility to review the process undertaken in updating the Investment Strategy Statement (ISS) and its approval and in ensuring that suitably qualified and experienced investment experts had been involved in the process.

The Head of Pension Fund Investments then briefly introduced the draft ISS which had been circulated to members in advance of the meeting. The ISS had been prepared with support from the Fund’s investment consultants and contained the updated strategic asset allocation, which had been approved by Committee after significant input from the Fund’s actuaries and investment consultants. In response to a question from the Board, it was noted that the current investment environment could provide investment opportunities in environmentally aware sectors. Officers had had positive conversations with Brunel particularly around private markets, which the Fund had recently made several commitments to and where there were opportunities in the renewables sector. Brunel itself had been focused on its climate change policies and its responsible investment engagement as a whole and, for example, had generally sought to avoid assets such as airports, as well as expecting funds in their portfolios to manage the carbon impact of the underlying investments.  These actions had boosted the resilience of Brunel’s existing investments in the current environment.

In response to concerns raised over the threat to investment opportunities as a result of COVID-19 it was noted that the Fund was keen to ensure its strategy remained long-term and to wait until the markets stabilise until it engages with Mercer and reviews aspects of the strategy.

Regarding the strategic asset allocation, it was noted that a desired outcome of the strategy review was to develop a mix of asset classes which would still deliver good returns, thereby reducing the need for contribution rate rises from employers, but also bring down the overall risk of the portfolio which previously had high exposure to equities. The Fund had removed the diversified growth fund and absolute return bond fund portfolios and instead committed to private market portfolios, namely secured income, private equity, private debt and infrastructure. While this would decrease the overall liquidity of the Fund, this was being managed through a large allocation to gilts and the creation of liquid interim portfolios and as the portfolios matured they are expected to become self-funding. It was also noted that these asset classes were slow to implement, and that this was being managed through liquid market portfolios as well as engagement with Brunel to ensure it is deploying capital in an even way and building these portfolios up over time.

The Fund had also changed its allocation to low carbon passive equities. Previously, the Fund had various other passive equities portfolios, but now its investments were in a low-carbon alternative portfolio through Brunel. This gave the Fund the same returns and volatility to the broader benchmark index but had a much lower carbon footprint. It was noted that the strategic asset allocation would be fully implemented over the next few years and that this could take up to six years, due to the allocations to the private markets. In the meantime, the Fund would have interim portfolios which would be implemented on a risk-return basis.

Resolved

To approve the process regarding updating and obtaining approval for the ISS.