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, policy and operational aspects of the Fund.

The Investments Manager introduced the report and highlighted these points from it.

·  Over 1 year the Fund returned 7.8% in absolute terms and -2.0% in relative terms, where most portfolios underperformed their respective benchmarks.

·  The Investment Panel met on 5 June 2024. The most substantive item discussed during the meeting was the proposal to appoint Octopus Real Estate as the manager of the Fund’s £50m initial commitment to affordable housing. The £50m represents c.30% of the fund’s overall allocation to local impact and will be split between a national pooled fund (£40m) and a purpose built co-investment vehicle (£10m), which will invest in affordable housing schemes in the Avon region.

·  A key source of liquidity is the excess cash collateral in the BlackRock QIF that was released following the reduction in the equity hedge. Rather than use this excess collateral to reinstate the LDI trigger framework and increase the level of liability hedging, Panel agreed to keep the trigger framework on pause so as not to create pressure on the Fund’s near-term liquidity position.

Steve Turner, Mercer addressed the Committee and highlighted the following points from Appendix 1.

·  The Fund’s assets returned 2.3% over the quarter, whilst the liabilities are estimated to have increased by c. 0.6%. The combined effect of this saw the estimated funding level increase to c. 98%. The funding level is estimated to be c. 4% higher over the year to 31 March 2024.

·  Of the listed equity portfolios, underperformance was most pronounced in the Global Sustainable Equity Portfolio, with Global High Alpha also lagging its benchmark return.

·  Underperformance over this period is attributed to underweight positions in the ‘Magnificent 7’ stocks.

·  Our medium-term outlook favours growth fixed income and nominal UK government bonds, with a slight overweight to equities (Emerging Market and Japanese equities).

William Liew asked if any further comment could be given on the decision to keep the LDI trigger framework on pause.

Steve Turner replied that a comprehensive liquidity review had taken place and that the view was reached that flexibility regarding Private Markets commitments was required, Local Impact / Natural Capital as an example. He added that the more hedging that is done, the more prudent we have to be on liquidity. He said that they remain being prepared for possible inflation hedging should inflation come down.

William Liew referred to the appointment of Octopus and asked if they would be acting as a landlord for the new affordable housing.

Steve Turner replied that Octopus own a registered provider, New Arch, who will have the responsibility to build and run the homes.

Councillor Toby Simon asked if these homes would count towards the property asset allocation.

Steve Turner replied that it is primarily viewed as Local Impact and that some degree of Real Estate exposure is taken into account.

Councillor Toby Simon asked for confirmation that Partners Overseas Property was not managed by Brunel.

Steve Turner replied that it was not and that it was not viable to transfer. He added that the payback would be over 7-8 years and they would not be reinvesting. He said that a strategic decision had been taken to allocate 2% to Natural Capital and that this was very illiquid.

The Committee RESOLVED to:

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

ii)  Note the decisions made by the Investment Panel at its 5 June 2024 meeting, namely:

·  To appoint Octopus Real Estate to manage a £50m allocation to affordable housing.

·  To keep the LDI trigger framework on pause in light of the Fund’s liquidity position over the next two years.