Agenda item

This paper reports on the investment performance of the Fund and seeks to update the Committee on routine strategic aspects of the Fund’s investments and funding level; and policy and operational aspects of the Fund.

The Assistant Investments Manager introduced this item to the Committee.

Steve Turner, Mercer informed the Committee that most of the losses seen in the investment funding level, due to Covid-19 had been recovered. He added that the funding level fell from c.96% to c.84% over the year to 31 March 2020 and that the deficit was estimated to have increased sharply over the year, from

£283m to £863m. He stated that the decline in the funding level was driven by the sharp contraction in market prices experienced at the end of 1Q 2020; steady improvements in the deficit and funding level had been seen up to this point.

Pauline Gordon asked if any figures were available for what the level would have been without the LDI (Liability Driven Investment) in place and whether there had been any opportunities in inflation to increase our hedge.

Steve Turner replied that no calculations have been done so far to see if we would have been better off without the LDI. He added that he felt it was still important to have a clear inflation hedging strategy in the overall portfolio.

Ross Palmer, Mercer added that a decision had been taken in March to reduce the level of inflation hedging due to concerns over potential RPI reform. He added that they are currently recalibrating the liability benchmark for the LDI Strategy with Blackrock and so the old inflation triggers would be kept in place while that work was ongoing. He said that a real return above CPI inflation is what we are looking to achieve.

Steve Turner commented that the drop in the funding level and increase in the deficit over the short period of time was within the overall risk level set within the strategy.

Pauline Gordon asked what was the worst VaR (Value-at-Risk) that had been identified.

Steve Turner replied that the current new strategy is around £1.3bn over a three year period and that the equivalent figure over one year is around £650m.

Ross Palmer added that when you take into account equity protection the figure becomes closer to £1.1bn.

Richard Orton referred to appendix four and commented that it was noted that the transition plan was slightly delayed due to the pandemic. He said that market conditions were shown to be nowhere near stabilising and that it would be difficult to predict over the next two – three months what would happen, especially if a second spike were to occur. He asked how likely it was that any further transition would take place.

The Group Manager for Funding, Investment & Risk replied that the delay was due to the ability to transact in the market at a reasonable cost. She added that Brunel were working within these parameters and would look to take opportunities when they arise. She said that she believed that the current conditions were supportive enough to allow for some of those planned transitions to proceed.

William Liew commented to praise the good advice, robust investment strategy and equity protection implemented by Mercer

The Chair agreed and said the advice received from Mercer and our officers, coupled with the structure of the Committee was a real benefit to the fund.

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