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.

Steve Turner, Mercer, gave an update on the Avon Pension Fund Committee Investment Report (Appendix 2) as follows:

1.  The markets had been volatile in the year to date due to the impact of rising inflation and rising interest rates and that was starting to increase concerns regarding slowing growth.

2.  Since March last year, the situation had escalated, in particular falls in equity market values.

3.  In terms of how the assets performed in Q1, there had been benefits to the diversified strategy.  The areas that had been weakest were as expected - equities and multi asset credit.  Other asset classes such as property infrastructure and private debt security income had held up well and had positive performance.

4.  The one anticipated change since end Q1 was the kicking in of the extra protection that would have started to cushion the falls in equity markets.

5.  In terms of how some of the funds performed, the Brunel Sustainable Equity and Global High Alpha had a challenging period recently in line with the overall investment style.

6.  The equity stocks that had performed well this year were high carbon emitting sectors such as energy, mining and oil but these areas did not align well with the Fund’s long term climate ambitions.

7.  This was the first time where it had been difficult to outperform and also progress on lower carbon goals.

In response to questions, it was confirmed that there wasn’t a strategy to exit the hedging strategy, but the situation was monitored regularly and would be reviewed if there were extreme falls in the equity market.  It was important to ensure that decision making was not around short-term trends, and the investment strategy was set up to meet long term demands.  However, Mercer was in regular dialogue with officers and if necessary, it was possible to make changes to the investment strategy.

Steve Turner, Mercer gave an update on Analytics for Climate Transition (Appendix 3).

He responded to questions as follows:

1.  The emerging market Weighted Average Carbon Intensity (WACI) was still being monitored.

2.  Avon Pension Fund was currently on track in meeting its climate goals. 

3.  In relation to the decarbonisation target, there was one part of the equity portfolio that was invested on an index tracking strategy that was targeting a Paris aligned benchmark so there was a high level of certainty that the fund would achieve decarbonization on that part of the portfolio.

4.  Where the funds were managed actively, the fund was dependent on Brunel as the source to future success.

5.  It was recommended not to have too many objectives as this would increase complexity, but the Committee could consider new objectives.

6.  It was recommended that the baseline was reset for the analysis to be in line with emerging best practice. (i.e. 2019 rather than 2020 which the Fund currently used).

7.  In terms of the objective of having 30% of total assets in sustainable and transitional aligned investments, this had been achieved ahead of schedule.

The Investments Manager confirmed that the baseline would be changed to be more aligned with the IGCC and therefore consistent with other funds.  In response to a question about the TCFD report, she confirmed the metrics would be aligned with whatever baseline was being used at the time and so it was an issue of timing as to whether it would be the old or new baseline.

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

RESOLVED that

1.  The progress made against climate commitments in the Analytics for Climate Transition Analysis be noted.

2.  The feedback on the questions asked in Exempt Appendix 4 about Brunel’s current Climate Policy be noted.

3.  Authority be delegated to officers and the Chair and Vice Chair to draft responses to the questions in Exempt Appendix 4 following the meeting.

4.  The information set out in the report and appendices be noted.