Agenda and minutes

The Chairman 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 complete the green interest forms circulated to groups in their pre-meetings (which will be announced at the Council Meeting) 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 2, A and 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 Officer or a member of his staff before the meeting to expedite dealing with the item during the meeting.

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The Panel confirmed the minutes of the two previous meetings as a true record and they were duly signed by the Chairman.

The Panel will receive a presentation from Brunel at the meeting.

David Cox, Head of Listed Markets gave a presentation to the Panel. The full presentation will be added to the minutes as an online appendix.

There was a discussion about the new Paris aligned benchmarks that Brunel developed with FTSE Russell and how these new indices can meet client requirements. Specifically, the FTSE Russell Brunel Climate Transition Benchmark (CTB) and Paris aligned Benchmark (PAB) indices are designed to reflect the performance of a global and diversified basket of securities where weights are varied in order to achieve climate targets, including:

i.  Emissions – they have target reductions in both Carbon Reserves and Operational Emissions

ii.  Exclusions - Such as activity based exclusions – Oil, Gas, Coal and Electricity generators (PAB only) plus others such as Tobacco, Controversial Weapons, Conduct (e.g. UNGC)

iii.  Corporate Target Setting such as TPI Management Quality Score, TPI Carbon Performance

The Group Manager for Funding, Investment & Risk asked if the Passive / Index Fund was a manageable process and controlled.

David Cox replied that it was 100% rules based and followed the EU approach and had been enhanced by FTSE data. He added that they were not looking to take any undue risk.

John Finch asked if they had looked at historical information regarding the index.

David Cox replied that they had researched data dating back to 2011.

The Service Director for Financial Control and Pensions asked what would happen if companies stray from the PAB.

David Cox replied that the index would then need to be rebalanced.

David Cox explained how Brunel assesses ESG integration in the manager selection process. This includes evaluating the following: the internal ESG Culture, Climate Change Policy alignment, Thought leadership

Finally there was a discussion about Investing in China. Brunel’s focus is on Human Rights in Supply Chains, Data Privacy, censorship & surveillance, Corporate Governance, Hong Kong and Taiwan, Climate Change, ADR/H-Share/A-Share

Steve Turner asked if it was harder to engage with companies linked to China.

David Cox replied that there was currently less transparency and that there was Chinese Government involvement in many companies to some degree.

The Chairman asked if companies will be given more time to declare / achieve their climate change targets.

David Cox replied that it was likely that different industries will provide a view point on what they can achieve but said that a net negative level needs to be achieved very soon after 2050. He added that passive indices would be a good judgement of their policies.

The Chairman thanked him for the presentation on behalf of the Panel.

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.

This paper reports on the performance of the Brunel and legacy portfolios and seeks to update the Panel on routine aspects of the Fund’s investments. The report contains performance statistics for periods ending 30 June 2021.

The Investments Manager introduced this report to the Panel. He informed them that the update on Brunel investment activity could be found at Appendix 3. He explained that as the transition of our assets to Brunel is drawing to a close the focus for the Panel was now on the ongoing management and performance of the Brunel portfolios.  He added that a summary table is included which is designed to flag any concerns from a performance and/or RI perspective. He said that there no flags in place for this quarter.

He said that the Fund became a signatory to the ‘2021 Global Investor Statement to Governments on the Climate Crisis’. He added that this Statement, coordinated by the Investor Agenda and signed by over 450 investors representing $41tn in assets, calls on Governments to strengthen their Nationally Defined Contributions to align with the transition to net-zero emissions by 2050 or sooner, commit to sector specific decarbonisation roadmaps supported by robust domestic policy, incentivise zero-emissions energy and transport infrastructure investment and support mandated climate risk disclosures.

Steve Turner, Mercer addressed the Panel and gave a summary of Appendix 2.

Market background

• The gradual emergence of many developed countries from restrictions as vaccine rollouts continued drove investor optimism, helping to bring about another strong quarter for risk assets.

• Markets largely saw through continued elevated inflation expectations, but it remains a key question as well as the potential impact of the delta variant on the economic recovery. Government bond yields fell thanks to central bank signals that have been less dovish than expected.

Mercer market views

• their medium-term views on the global economy are favourable, as they expect it to strengthen sharply as economies re-open

more fully. Governments and central banks are likely to continue to support economic activity.

Funding level and risk

• The funding level is estimated to have improved from 97% to 101% over

Q2 as asset growth outweighed the rise in the value of the liabilities. It is estimated to have increased by 9% over the year to 30 June 2021.

• The Value-at-Risk rose over the quarter to £1,134m, or 20.5% of liabilities. Risk as a proportion of liabilities has reduced over the year, largely due to the decision to move towards a dynamic equity option strategy.

Performance

• Underperformance relative to the strategic benchmark over the one

and three-year period to 30 June 2021 is mainly due to the impact of

the equity protection strategy, but this has behaved in line with expectations given the increase in the underlying equity markets.

• Relative performance was mixed at the mandate level, though the High Alpha Equity, Hedge Fund and Core Infrastructure mandates have continued to stand out in outperforming their benchmarks.

Asset allocation and strategy

• In May, the Fund implemented the new dynamic structure for the equity option strategy.

• In June, the Fund terminated its Multi-Asset Credit holdings with Loomis Sayles, transferring these to a new MAC fund with Brunel.

• At quarter end, all asset classes were within their ranges, except for  ...  view the full minutes text for item 22.

The Funding and Risk Management Group (FRMG) is responsible for agreeing the operational aspects relating to the Fund’s risk management framework thereby ensuring that strategic objectives continue to be met. This report informs Panel of issues considered and decisions made by FRMG as well as any recommendations.

The Investments Manager introduced this report to the Panel. He explained that the Funding and Risk Management Group (FRMG) is responsible for agreeing

the operational aspects relating to the Fund’s risk management framework thereby ensuring that strategic objectives continue to be met.

He stated that this report informs the Panel of issues considered and decisions made by FRMG as well as any recommendations. He added that since the last Panel meeting there has been one meeting of the FRMG on the 26 August 2021 and that there are no strategic issues or concerns to raise with the Panel.

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)  Note the updated funding level and LDI hedging position

(ii)  Note the impact and performance of the equity protection strategy

(iii)  Note the performance of the Buy & Maintain Corporate Bond strategy

(iv)  Note FRMG considerations regarding the hedge ratio of the liability benchmark portfolio.

This report sets out the forward agenda for the Panel for 2021.  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 this report to the Panel. She said that it was likely that a stocktake review would take place during 2022.

The Panel RESOLVED to note the forward agenda.