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 to the Committee and highlighted the following areas.

·  Over one year the Fund delivered an absolute return of -0.6% and underperformed its benchmark by 5.4% in relative terms, where most portfolios underperformed their respective benchmarks. Of the listed equity portfolios, underperformance was most pronounced in the Global Sustainable Equity portfolio, with Global High Alpha also lagging its benchmark return. A key driver of this underperformance was the Fund’s underweight exposure to the ‘Magnificent 7’ technology stocks which were the primary contributors to global equity gains during the period.

·  The equity protection strategy, designed to mitigate downside risk, also detracted from returns in what was a positive but narrowly led equity market. This environment proved particularly challenging for active managers as gains were concentrated in a small subset of mega-cap technology names.

·  Brunel have been invited to a future meeting of the Investment Panel to discuss performance levels.

·  The Investment Panel were informed that the remaining £30m uncommitted local impact capital would be allocated to the Fund’s existing three managers: Schroders Greencoat (Renewable Infrastructure), Octopus (Affordable Housing) and Foresight (SME Private Equity).

·  Mercer has previously provided suitability advice on all three managers and is supportive of the proposal given all managers have a demonstrable pipeline of opportunities and have successfully deployed capital in relatively short order. A ‘top-up’ of this size is unlikely to materially increase portfolio concentration in any one area or asset.

·  The Fund will be considering whether to raise its allocation to local impact as part of the 2025 Investment Strategy Review.

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

·  The funding level is in a healthy position at around 105% / 106%.

·  Continued rate cuts by most developed market central banks, European politics and tariffs were the key themes driving markets in the first quarter of 2025.

·  Overall, global equities ended the quarter in the red driven by the considerable uncertainty from tariff and growth concerns.

·  Changes in bond yields were mixed across developed markets. The curve steepened in the UK amidst hawkish BOE cuts, tariff woes and revised budget spending plans.

·  Markets have not been hugely impacted by the ongoing conflicts around the world.

·  Portfolios are well diversified, but it was recognised that there is room for improvement in the performance of Brunel.

Councillor George Leach commented that he would welcome seeing figures for five years within the report.

Steve Turner replied that these figures would be available and could form part of future reports.

Charles Gerrish asked if despite being underweight to certain big US technology stocks, had the Fund benefitted from the value of the US dollar falling.

Steve Turner replied that the Fund had benefited from this through their hedging arrangements.

William Liew asked for officers to monitor Brunel with regard to any issues of key staff retention.

The Head of Pensions replied that the Committee would be updated of any key changes.

The Committee RESOLVED to note the information set out in the report and appendices.