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 Investments Manager introduced this report to the Committee and set out some of the key areas within it.

Liability Risk Management Strategy Performance - The Fund’s inflation hedge ratio was increased to 35% of assets in line with the recommendation agreed by Committee at its September meeting.

The announcement on RPI reform clarified that the Retail Price Index (RPI) will

align to the UK Consumer Price Index from 2030 and that there will be no

provision for compensation to existing index-linked gilt holders. With inflation risks to the upside persisting, Officers and Mercer will work with the manager to further increase the inflation hedge ratio of the LDI programme to the maximum allowable under mandate guidelines, under delegated authority.

Fund Performance

Steve Turner, Mercer addressed the Committee and said that overall it had been a positive quarter and that generally the market outlook appeared to be good. He added that the only negative performers in the portfolio were UK equities, which remain subdued due to ongoing Brexit negotiations and secured income, which is still in the process of being drawn down. He said that further upsides in equities were possible in Q2 and that credit spreads were now back to pre-pandemic levels.

Councillor Toby Savage said that he felt that the report was encouraging and asked how the Fund compares statistically with funds that have a comparable investment strategy

Steve Turner replied that it was difficult to compare Funds as they could be operating a number of different strategies within each Fund. He added that he believed that the Avon Pension Fund was well placed in the pack and that the focus should be on its funding position.

Pauline Gordon asked regarding RPI hedging whether there was any indication of the price in comparison to what we would consider fair value when we think about the trigger framework and where the Fund would be if the decision to reduce the inflation hedge ratio hadn’t been taken in April 2020.

Nick Page, Mercer replied that at all points across the curve we are higher than where inflation is which is a good reference point. He added that there is a need to look at where best on the curve closest to our trigger levels to implement the hedge.

He said in relation to taking the decision to reduce the hedge that initially there was a loss of around £40m, however since then as inflation has risen we have been able to recoup a substantial amount of that figure.

Councillor John Cato referred to page 119 of the agenda and asked if where targets were not being met were the managers being managed appropriately.

Steve Turner replied that the figures related to performance since inception. He added that Ruffer DGF was on its way out of the Fund and that Loomis Sayles MAC was due to be transferred to Brunel. He said that there was a need to be pragmatic and for a long-term approach to be taken on Partners Overseas Property.

Councillor John Cato referred to page 137 of the agenda and asked if officers had any influence on the engagement data gathered.

The Group Manager for Funding, Investment & Risk replied that they do have input into the engagement data collected by the LAPFF (Local Authority Pension Fund Forum) and said that it was led by topical issues and that it was clear that Climate Change remained a significant priority.

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