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 March 2024. It had shown funds’ assets were £1,357m and equated funding level of 114%, an increase of 7% from the previous quarter. The primary reason for the improved funding level was due to an increase in discount rate from 5.8% (December) up to 6.1% (March 24).

With regard to the Fund Performance, the Committee was advised that, over the last quarter to 31 March 2024, the Fund had outperformed the benchmark return by 0.07%. The Fund value had also increased over the quarter by £109m, up to £1,357m, in part due to £45.2m received from HCUC after finalisation of its merger with Richmond College.

In response to Member clarifications regarding performance management, it was explained that in the context of performance management, the term “wound down” referred to the process of gradually reducing investments. When funds were allocated to private market investments (such as infrastructure or private debt), they were initially invested. However, it was highlighted that over time, as these investments generated returns, the funds were paid back. As a result, the overall investment size decreased. Members were advised that if there was an initial allocation of £50 million, it would gradually decrease as profits were released and assets were sold. It was noted that when an investment was  “wound down,” it usually meant that that the fund allocation had been repaid, leaving only a few remaining assets to manage.

It terms of the London CIV, it was noted that the position had now changed in a positive manner and the outlook was more client focused, with an improvement in governance and ESG. It was agreed that the approach to the London CIV of collaborative partnership working was the best way forward as there was more likelihood of getting more from the pool rather than some funds that were less collaborative.

In relation to pooling, the Committee was informed that the focus was on maximising performance and cost-effectiveness in the investment journey. Pooling was encouraged to reduce costs and take advantage of added extras, such as free environmental reporting. There was more engagement in underperforming funds, emphasising the need for refined processes and improved access to information. Members heard that there was a commitment by all those involved to achieve performance gains and operational efficiencies.

During Member discussions it was noted that the funding level had significantly improved, rising from 87% during the last formal strategy review to 114%. This positive change was driven by favourable market conditions, including strong performance in equities and growth assets. Additionally, higher interest rates had led to a decrease in liabilities, further contributing to the improved funding condition.

Members were advised that Communication with the pool had become more effective, with a two-way exchange of information. Regular updates and engagement with the CEO had enhanced communication channels.

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