Agenda and draft minutes

The Chair will draw attention to the emergency evacuation procedure as set out under Note 5.

The Democratic Services Officer drew attention to the Emergency Evacuation Procedure.

At this point in the meeting declarations of interest are received from Members in any of the agenda items under consideration at the meeting. Members are asked to indicate:

(a) The agenda item number in which they have an interest to declare.

(b) The nature of their interest.

(c) Whether their interest is a disclosable pecuniary interest or an other interest, (as defined in Part 4.4 Appendix B of the Code of Conduct and Rules for Registration of Interests)

Any Member who needs to clarify any matters relating to the declaration of interests is recommended to seek advice from the Council’s Monitoring Officeror a member of his staff before the meeting to expedite dealing with the item during the meeting.

There were none.

Councillor Paul Crossley and John Finch (Independent Member) had given their apologies to the Panel.

There was none.

There were none.

There were none.

The Panel RESOLVED that the minutes of the meeting held on 27^th February 2024 be confirmed as a correct record and signed by the Chair.

This repoort and its appendix have been classified as EXEMPT.

The Panel, having been satisfied that the public interest would be better served by not disclosing relevant information, RESOLVED, in accordance with the provisions of the Section 100(A)(4) of the Local Government Act 1972 that the public should be excluded from the meeting for this item of business, because of the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12A of the Act as amended.

The Fund’s projected cashflow position over the next two years is subject to ongoing benefit payments and existing private markets commitments, which are still being invested and therefore not distributing cash. This requires a prudent approach to liquidity given the timing and uncertainty of private market drawdowns. However, the Fund has a good liquidity position and this paper focuses on how this liquidity should be managed.

The Group Manager for Funding, Investment & Risk introduced the report to the Panel and highlighted the following points.

·  Mercer have undertaken a liquidity review exploring current and potential sources of income and how best to use collateral that currently forms part of the Fund’s risk management framework.

·  On balance Mercer recommend using the excess collateral to reinforce the Fund’s cash position. The remaining collateral in the QIF will be sufficient to back the existing interest rate and inflation hedges and significantly above the collateral buffer recommended by the regulator. No further hedging will take place until the trigger framework is reactivated.

·  Income is the other source of liquidity and this will become more important as the cashflow matures over time. Income from the private market and property portfolios is already reinvested into those portfolios. Officers will discuss with Brunel whether there are other portfolios or underlying funds that could distribute income and how this could be achieved.

The Panel, having been satisfied that the public interest would be better served by not disclosing relevant information, RESOLVED, in accordance with the provisions of the Section 100(A)(4) of the Local Government Act 1972 that the public should be excluded from the meeting for this item of business, because of the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12A of the Act as amended.

The Panel RESOLVED to:

i)  Agree to keep the LDI trigger framework on pause, noting the Fund’s projected cash requirements over the next two years.

ii)  Delegate how to invest excess collateral to officers in consultation with Mercer.

iii)  Delegate the decision to select an appropriate funding source for a Natural Capital allocation to officers in consultation with Mercer.

This paper reports on the performance of the individual portfolios and seeks to update the Panel on routine aspects of the Fund’s investments. The report contains performance statistics for periods ending 31 March 2024.

The Senior Investment Officer introduced the report to the Panel and summarised the following areas.

·  The Fund’s assets were £5,818m on 31 March 2024 and delivered a net investment return of 2.3% over the quarter which was in line with the benchmark. The increase in the value of Fund assets over the quarter reflected strong equity markets, with Brunel’s listed portfolios all positive on an absolute basis, although flat on a relative basis.

·  The liabilities are estimated to have increased by c.0.6% over the quarter. Taken together with the asset return, the funding level stood at 98% at March-31 (c. £107m deficit).

·  Risk assets began the year as they finished the last with global equities up close to 10% in sterling terms in the first quarter 2024. The US market was the clear leader, while emerging markets and the FTSE All-Share lagged. Gains across all asset classes could largely be attributed to a resilient US economy, rebounding oil prices, and continued positive sentiment around Artificial Intelligence. Expectations of interest rate cuts also boosted equity markets although the pace of cuts is likely to be slower than the market had hoped at the turn of the year as inflation has once again proved stickier than expected.

·  In Brunel’s listed market portfolios, absolute returns were positive reflecting the strength in global equity markets over the period. Global High Alpha returned 9.9%, just 0.1% below the benchmark (MSCI World). Sector attribution showed allocation and selection were neutral overall. The Global Sustainable Equity portfolio returned 9.2%, also 0.1% behind its benchmark (MSCI ACWI). Market sentiment for sustainable investing continued its positive trend that began in Q4 2023 however, over one year to end March 2024, the portfolio remains significantly behind the benchmark.

·  The Diversifying Returns Fund (DRF) returned 4.3% over the quarter, ahead of the benchmark return of 2.0%. Increasing exposure to equities over the six months to quarter end enabled the portfolio to benefit from recent market performance. Multi Asset Credit (MAC) returned 2.2%, which was slightly behind the benchmark return. Credit spreads tightened over the quarter reflecting the improvement in the economic outlook and an increase in risk appetite.

·  During the period £35m was drawn into the new local impact portfolio to finance the acquisition of an operational solar portfolio. A further £40m was drawn into the Fund’s Secured Income portfolio. To facilitate  these large capital calls the Fund used cash and liquidated some of its ETF holdings. Officers redeemed £50m from the Brunel Paris-aligned passive equity portfolio to increase cash at hand and reduce the aggregate overweight position to equities. Post period end the Fund received advance deficit payments totalling £30m.

·  Voting and Engagement Activity: As a responsible investor, we actively endorse collaborative engagement and seek to use our power as a shareholder to encourage corporate change. Voting and engagement are delegated to the Brunel Pension Partnership for the actively managed equity portfolios and to Legal and General Investment Management (LGIM) for the passive portfolios. On significant issues, Brunel may request  ...  view the full minutes text for item 10.

This report informs Panel of issues considered and decisions made by FRMG as well as any recommendations.

The Investments Manager introduced the report to the Panel and highlighted the following points.

·  The underlying equity benchmark rose over the quarter, with the equity protection strategy (EPS) performing in line with expectations, decreasing net equity performance by 0.9% as markets moved toward the protection levels. Since inception the dynamic EPS has detracted c. 2.7% from equity returns and reduced volatility by c. 25%.

·  Following the reinstatement of the interest and inflation trigger framework in October 2023, several interest rate triggers have been hit leading BlackRock to trade up to the 39% cap on the aggregate interest rate hedge ratio. The inflation hedge ratio was around 22% at the same date. As it has hit the 40% hedge ratio, the trigger framework is currently suspended.

The Panel, having been satisfied that the public interest would be better served by not disclosing relevant information, RESOLVED, in accordance with the provisions of the Section 100(A)(4) of the Local Government Act 1972 that the public should be excluded from the meeting for this item of business, because of the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12A of the Act as amended.

The Panel RESOLVED to note the performance of each of the underlying RMF strategies and current collateral position.

The Fund already has a robust governance process in place and a clear LDI strategy. However this LDI Implementation Policy brings all aspects into one document which can be periodically reviewed to ensure resilience is maintained as market conditions or our investment strategy changes.

The Group Manager for Funding, Investment & Risk introduced the report to the Panel and highlighted the following points.

·  The policy has been drafted in line with the guidance from TPR, which addresses the issues that pension funds in general faced during the gilts crisis. It sets out the operational, governance and monitoring processes established by the Fund, as well as the responsibilities of each of the parties involved.

·  The policy will be reviewed annually by the Funding & Risk Management Group, or more frequently should there be material changes to the investment strategy (which could, for example, affect how we source additional collateral) or market conditions.

Councillor Chris Dando referred to the Governance Model section of the policy and asked whether, as well as stating the role of the FRMG, it should include that matters are reported to the Investment Panel and the Avon Pension Fund Committee to give additional strength.

The Group Manager for Funding, Investment & Risk replied that any strategic risk management issues are reported to the Committee, but they have delegated the monitoring of risk management to the Panel.

The following amendment was proposed by Councillor Dando and seconded by Jackie Peel.

Strong level of governance within the FRMG, providing oversight and risk management-focused expertise that is relayed to the Investment Panel and scrutinised on a quarterly basis.

The Panel agreed and approved the amendment to the policy.

The Panel RESOLVED to note the LDI Implementation Policy, as amended.

This report sets out the forward agenda for the Panel for 2024/25. It is provisional as the Panel will respond to issues as they arise and as work is delegated from the Committee.

The Group Manager for Funding, Investment & Risk introduced the report to the Panel and drew their attention to the future meeting dates that have now been set through to the end of 2025.

Councillor Chris Dando referred to the meeting in September 2024 and asked whether the title ‘Introduction to Nature Based Investing’ was correct.

The Group Manager for Funding, Investment & Risk replied that it should be ‘Introduction to Natural Capital Investing’ and said that it was likely that this report would move to November 2024.

The Panel RESOLVED to note their forward agenda.