Agenda item

The Group Manager for Funding, Investment & Risk will provide the Panel with an update at the meeting.

The Service Director for Commercial and Governance addressed the Board. He explained that Tony Bartlett, former Service Director for Financial Control and Pensions had now left the Council and administration arrangements for the Avon Pension Fund was now within his work area.

He said that they were in the process of recruiting for the position of Head of Pensions and that in the interim he was undertaking this role with the support of the lead Pensions officers and their teams.

Tony Whitlock asked what the likelihood was of being able to make an appointment to this position.

The Service Director for Commercial and Governance replied that a number of applications have already been received and that the closing date was 16^th June 2022.

The Group Manager for Funding, Investment & Risk addressed the Board. She said that the conflict in Ukraine and the impact that has had on inflation globally, alongside rising bond yields remains a concern as this has a big impact on investment markets.

She said that when sanctions were imposed as a result of the conflict that this meant a certain number of assets were unable to be sold. She added that the Fund had a limited exposure of this nature, around £150,000. She said that managers would now value these assets at zero.

She stated the main impact though is inflation and rising bond yields and the effect this had on our investment performance in the quarter up to March 2022 and in the current quarter. She said that the Fund has very little exposure to sectors and stocks that would do well in an inflationary environment, such as oil, gas, materials and energy and this was because of the tilt the Fund has towards ESG companies.

Therefore, it was difficult for the Equity Portfolios at the present time and that Brunel were monitoring this closely. She said that they would not expect a change in investment approach from managers as they were appointed on the basis of how they invest.

She stated that she felt that a prolonged state of inflation was now to be expected and therefore consideration needs to be given to how this will impact investment returns we achieve versus what is needed for the valuation.

She explained that all benefits are inflation linked and this will have a major pressure on our liabilities which will be a lot higher (will have an impact when the pensions increase rate is set in September).

She said that the period ahead would be challenging but felt the Fund has the ability to ride out this difficult period and should not look to make any knee jerk reactionary decisions.

She informed the Board that Brunel were operating just inside their budget and that discussions were ongoing with regard to their strategic direction and client priorities for the next 2-3 years. She added that there was a consensus that they should continue to deliver on responsible investing, climate solutions and better reporting.

She stated that a big project was also taking place with Brunel on the Climate Stocktake to review their climate policy, how successful it has been and what the focus should be over the next 2-3 years. She added that this work was due conclude later in the year and then the Fund would use this policy as part of the Strategic Review to ensure we can achieve our own climate objectives.

The Chair commented that it was good to see the ESG focus remain with Brunel but asked if there was a risk should they not redirect themselves sufficiently that they will not able to meet its fiduciary duty in terms of returns to the Fund.

The Group Manager for Funding, Investment & Risk replied that it was set to be a testing time and said that the Avon Pension Fund did previously have a UK Equity Portfolio which had no investments in oil or gas. She added that the portfolio underperformed for a long period of time but they persisted with it as they believed it would produce the returns required in the long term.

She said that there could be difficult discussions ahead with clients that maybe are not so ESG imbedded as a driver of returns if the situation persists for up to a year, which it could.

She stated that she felt we were in a time of significant market disruption over the next couple of years due to Covid and deglobalisation and inflation. She added that she could not see Brunel swaying from their ESG stance and it would be a case of how they and we manage that risk in terms of our strategic decision making.

The Board RESOLVED to note the update.