Agenda item

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 the Renewable Infrastructure and Private Debt mandates which are still in the process of being drawn down.

Shirley Marsh-Hughes if there was now less demand for value stocks.

Steve Turner replied that this was difficult to answer and would depend on whether central banks raise interest rates, as they are more sensitive to economic activity.

Pauline Gordon asked if any further comment could be made in respect of the IFM – Core Infrastructure.

Steve Turner replied that this is a legacy portfolio and options for managing this allocation in the future will be discussed at the next Panel meeting.

The Panel RESOLVED to note the information as set out in the reports.