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 September 2022.

The Investments Manager introduced this report to the Panel. He informed them that the Fund’s assets decreased by £91m in the quarter (-1.2% net investment return) ending September 2022 giving a value for the Fund of £5,365m. He added that the fall in the value of Fund assets over the quarter was driven mainly by the currency hedge as sterling weakened, although this was partially offset by positive returns from overseas exposure. He said over 1 year the Fund returned - 6.0% driven by negative returns from equities, LDI and currency hedging. He added that the Fund underperformed its strategic benchmark by 6.6% over this time horizon and the main detractors were the active equity portfolios, MAC and DRF.

Steve Turner, Mercer addressed the Panel. He said that it had been a very challenging period to invest and generate a positive return as very few asset classes are actually up over the year. He added for example that the Dollar was up over this period alongside Commodities, Energy and Property.

He stated that the total Fund level was down around 6% overall over the 12-month period. He felt that overall this was a modest reduction given the context of what had been happening on the whole and said that they were now seeing the genuine benefits of the diversification within the portfolio.

He explained that Brunel’s style of climate aware investing had struggled because of their underweight to Commodities and Energy. He added that alternative investments and the Equity Protection Strategy had cushioned losses.

He stated that another positive feature of the strategy was the performance of illiquid assets such as Property, Secured Income, Infrastructure and Private Debt which have performed well, both in absolute terms and relative to their benchmarks.

Pauline Gordon asked if any comment could be given as to how the portfolio has performed under the Dynamic Equity Protection Strategy as opposed to the Static.

Nick Page replied that it was hard to say whether it was better or worse because we have recently seen some big market movements and the strategy has moved in line with that. He added that a key differentiator of the dynamic approach- that has worked to the Fund’s advantage was the premium generated by selling upside in addition to the downside protection achieved.

Steve Turner referred to a chart on page 159 that illustrated the direct impact of the equity protection on the total Fund portfolio, by comparing the estimated total asset valuation with and without the strategy in place. He added it shows that the protection strategy has led to c. £68.7m of upside impact over the period since inception.

Jackie Peel asked what level on ongoing dialogue there was with Brunel in respect of portfolio performance and other issues.

The Group Manager for Funding, Investment & Risk replied that officers meet with them every quarter to talk about the portfolios in general and certain themes. She added that officers also meet with a senior manager to discuss matters in more detail.

Steve Turner commented that Brunel’s performance is on par with other Funds that invest with a similar philosophy.

The Panel RESOLVED to:

i)  Note the information as set out in the reports.

ii)  Identify any issues to be notified to the Committee.