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.

John Finch (Independent Member) had given his apologies to the Panel.

There was none.

There were none.

There were none.

The Panel RESOLVED that the minutes of the meeting held on 5th September 2024 be confirmed as a correct record and signed by the Chair.

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.

Natural Capital was identified at the last climate policy review as an area the Fund should explore further given its ambitious Net Zero 2045 target. To date, significant progress has been made to decarbonise the portfolio, however decarbonisation alone has limited real world impact.

The Investments Manager introduced the report to the Panel. He explained that the Panel have expressed an interest in investing in restorative type strategies given their high degree of positive impact.

He said that it is expected that implementation of the Fund’s Natural Capital allocation will be via a dedicated Brunel portfolio and that there are a number of underlying Brunel partner funds interested in making an allocation.

He stated that the views of the Panel will be fed directly into the Brunel scoping process to help shape the natural capital portfolio specification and that once the Brunel specification has been refined the Panel will make a recommendation to the Committee to invest the proposed 2% allocation.

He added that this recommendation is expected to go to Committee in the first half of 2025 once the portfolio specification is more developed.

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 information contained in the training materials in Exempt Appendix 1.

ii)  Recommend to the Committee that the Fund allocates 2% to Natural Capital, subject to the finalisation of the Brunel portfolio specification.

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 30 September 2024.

The Senior Investments Officer introduced the report to the Panel and noted the following points from within it.

·  The Fund’s assets were £6,034m on 30 September 2024 and delivered a net investment return of 3.5% over the quarter which was 2.2% ahead of its strategic benchmark.

·  Over 1 year to the end of September the Fund returned 14.8% in absolute terms and +2.7% in relative terms.

·  The estimated funding level stood at 104% at 30 September 2024 (c. £220m surplus).

·  In Brunel’s listed market portfolios, returns were mixed, however these were offset by strong performances from Multi Asset Credit as well as the private market portfolios.

·  The Global High Alpha Equity portfolio returned -0.5% over the quarter, underperforming the benchmark (MSCI World) by 0.9%. This was largely driven by the portfolio’s tilt to growth and quality, which significantly underperformed value over the quarter.

·  The Global Sustainable Equity portfolio was flat over the quarter with a net return of 0.0%, marginally underperforming its benchmark (MSCI ACWI) by 0.6%.

·  The PAB Passive Global Equity portfolio returned 0.4% over the quarter, in line with the market capitalisation parent benchmark. The portfolio benefited from limited exposure to the energy sector which was positive for returns. The divergence in performance of the so-called Magnificent Seven stocks had implications for portfolio returns with Apple and Meta making positive contributions, whilst Microsoft, Amazon and Alphabet were the biggest detractors.

Steve Turner addressed the Panel and highlighted the following points to them.

·  The funding level is estimated to have increased over the quarter to c. 104% as the value of the assets increased by more than the estimated present value of the liabilities.

·  Brunel are not alone with issues relating to their equity portfolios – other funds are seeing similar problems.

·  A portfolio construction assessment was due to be carried out.

The Group Manager for Funding, Investment & Risk added that they have been discussing this matter already with Brunel.

Steve Turner said that there were three elements to focus on, construction of portfolio, managers and risk management.

The Head of Pensions queried whether the US market was over-valued and would this therefore be the correct time to make any changes. He said that he was not convinced that this would be the right decision.

The Panel RESOLVED to note the information as set out in the report and its appendices.

The Funding and Risk Management Group (FRMG) is responsible for agreeing the operational aspects relating to the Fund’s Risk Management Framework (RMF) thereby ensuring that strategic objectives continue to be met. This quarters report includes the annual health check of the risk management framework, which looks at options for utilising excess collateral held within the QIF. 

The Investments Manager introduced the report to the Panel and said that the Risk Management Framework was performing as intended and highlighted the following points.

·  The synthetic equities were used to rebalance the overweight due to ease of implementation and the fact the Fund will pay a lower ongoing financing cost for the synthetic equity holdings (c. £1.2m p.a). Post period-end steps were taken to reduce the synthetic Paris-aligned equity exposure by £300m, reducing the overall synthetic exposure from c. £1,000m to c. £800m.

·  The excess collateral position is central to the RMF annual health check, which the Panel consider before taking recommendations to full Committee in December.

·  The Mercer paper outlines options for how to use excess collateral, such as reinstating the interest rate trigger framework and switching synthetic Paris-aligned equities into the physical Brunel Paris-aligned fund.

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)  Recommend to the Committee that the options set out in Exempt Appendix 1 are considered as part of the 2025 Strategic Investment Review and that no immediate action is taken before then.

ii)  Note the reduction in the synthetic equity exposure to bring aggregate equity exposure to within the tolerance range set out in the Investment Strategy Statement.

iii)  Note the performance of each of the underlying RMF strategies and current collateral position as set out in Exempt Appendix 1.

This report sets out the forward agenda for the Panel for 2025. 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 added that an Investment Review would be carried out in 2025.

The Panel RESOLVED to note their forward agenda.