Agenda item

Officers presented the Investment Strategy and Fund Manager Performance update.

In terms of the Funding Update, it was confirmed that an interim funding level update had been produced by the actuary on 31 December 2023. It had shown funds’ assets were £1.25m and equated funding level of 107%, a decrease of 6% from the previous quarter. The primary reason for the reduced funding level was a decrease in discount rate from 6.4% (September) down to 5.8% (December).

With regard to the Fund Performance, the Committee was advised that, over the last quarter to 31 December 2023, the Fund had outperformed the benchmark return by 0.89%. The Fund value had also increased over the quarter by £65m, up to £1,248m. Longer term, three and five-year performance was 3.56% 4.68% but behind the benchmark. Two portfolios managed by the LCIV were the best performers in the quarter under review. Longer term, Macquarie was the standout manager over one and three-year performance measurements, with 18.58% & 17.18% returns above its set benchmark for both periods. Baillie Gifford and Ruffer had both surpassed their benchmarks for the quarter so were performing better in the short term.

In terms of Asset Allocation relative to Benchmark Allocation, it was noted that investment in property was overweight due to the change in the benchmark weight. Investment in UBS and index linked gilts would be reduced for rebalancing.

Members sought further clarification as to what had changed in the market as a whole over the quarter in question.

Andrew Singh, Isio, confirmed that quarter 4 2023 had been very good. This trend had continued through March 2024. Inflation had started to decrease leading to more certainty and markets had reacted positively to that. Longer term yields had also come down creating a good dynamic for pensions funds. It was anticipated that there would be more certainty in the market going forward.

Clare Scott, Independent Adviser, noted that, as indicated in the table on page 31 of the agenda pack, LCIV, LGIM and UBS had a large share of the fund allocation while the remaining managers were small. A 3-month period was therefore not representative of typical performance, and it was important to not treat all the numbers equally.

Siliva Knott-Martin of LCIV observed that, in the private market, there was a ramp up period of approximately four years; it was therefore not possible to assess performance during this period. The official performance of the private debt fund would be measured in April 2025.

Members noted that they were keen to see growth over the next three years. Officers were requested to continue to work on how the information was presented; a ‘since inception’ column and dates would be very useful.

In response to questions from the Committee, it was acknowledged that some managers had negative performance and had yet to demonstrate longer term improvements. It was likely to be three or four years before positive numbers were seen over longer periods. The importance of focussing on the longer-term numbers was highlighted as the quarterly market was very volatile.

RESOLVED: That the Pensions Committee noted the funding and performance update.