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 the report to the Committee. He stated that the Investment Strategy Statement (Appendix 4) had been updated to account for the most recent changes to the strategy following the equity allocation review, creation of FRMG and the change to the EPS structure.

Josh Caughey, Mercer addressed the Committee and highlighted points from within Appendix 2.

Funding level and risk

·  The funding level is estimated to have improved slightly over Q3 to just over 101%, as asset growth outweighed the rise in the value of the liabilities. It is estimated to have increased by 8% over the year to 30 September 2021.

·  The Value-at-Risk rose over the quarter to £1,206m, or 21.4% of liabilities, mainly due to the increase in the absolute value of the assets.

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 and the currency hedge in place.

·  Relative performance was mixed at the mandate level, though the Hedge

Fund and Core Infrastructure mandates have continued to stand out in

outperforming their benchmarks. The Diversified Returns mandate has also done well over the year.

Liability hedging mandate

•  BlackRock were in compliance with their investment guidelines over the quarter.

•   No triggers were breached over the quarter.

•  The inflation hedge ratio was below its target of c. 45% of assets, as the refreshed LBP showed increased inflation sensitivity within the Fund’s

liabilities. Changes to the inflation hedge ratio target will be considered in more detail by the FRMG in due course.

Collateral position

•  Collateral within agreed constraints.

•  The BlackRock QIF could sustain a 2.9% p.a. rise in interest rates, an 11% fall in the value of the options, or a 0.4% fall in inflation before the

early warning trigger is breached.

The Committee, 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 members of the Committee were minded to advise that the following resolutions should be made on Friday 17th December.

The Committee is asked to:

i) Approve the revised Investment Strategy Statement

ii) Note the information set out in the report and appendices.