Issue - meetings
Independent Advisor Report on Market Outlook and Investment Managers Performance for Quarter Ending 30 June 2018
Meeting: 29/11/2018 - Pensions Committee (Item 6)
6 Market Outlook Update by the Fund Independent Adviser PDF 116 KB
Minutes:
Colin Robertson, Independent Adviser presented the Market Outlook Update in respect of the performance of the markets and the Pension Fund investment managers for the first quarter of 2018/19. The questions and comments from Members on the report may be summarised as follows
The Committee noted that:
- Gilt and bond exposure very low in context of liabilities but acceptable given central bank manipulation and very low level of yields.
- Absolute return / DGF holdings somewhat temporary, would not hold these assets in the long term at the current level of exposure.
- Fund has more inflation protection than interest rate protection
The Chair Moved and it was:-
RESOLVED
To note the Update Report.
Meeting: 26/11/2018 - Pension Board (Item 7)
Presentation: Views on current Fund Investment Strategy and Divestment Consideration Process from the Fund Independent Advisor – Colin Robertson
Minutes:
The Board received a presentation from Colin Robertson, Independent Advisor, on the soundness of the Council’s investment strategy and consideration of fossil fuels.
- The independent advisor explained that there were two types of bond fund. Firstly there were those unlikely to fall much in absolute terms and so often considered low risk and secondly those which might fall significantly in absolute terms but which moved more in line with the liabilities, crucial to a pension fund. The Board were advised that this second category included index linked gilts, so they had strong defensive characteristics.
- It was clarified that strategic weight was a long term goal and could be found recorded in the investment strategy statement. Actual weight was dependent on how markets perform in the short term. In the case of equities, the actual was higher than strategic so there could be an argument for reducing closer to the strategic 50% mark. The equity protection strategy would protect the Fund from a fall in equity markets to some extent.
- It was noted that the pension fund’s current investment strategy was sound and appropriate for current conditions but probably not the best place to be in the longer term.
- The strategic weight for the Council’s Diversified Growth Funds and Absolute Return Funds combined was 32%. Having heard the performance in this type of fund had been poor, Members’ queried if this would be an issue in the long term. The advisor explained that the majority of the pension fund’s investments in these asset classes were of the same type or nature in that they aimed to produce a return above cash utilising the skills of an investment manager. Consequently these assets should be thought of as less sensitive to market movements than other asset classes and hence less vulnerable to falls in markets. However Members were cautioned against holding onto them on the current scale in the long term.
- The Council has some protection against inflation through property and index linked gilts and potentially through infrastructure.
- The Fund did not have a lot of exposure to the credit cycle which was a positive thing at this time.
- It was concluded that the Fund’s overall position was sound but in due course the council may wish to consider a move into bonds which would match the liabilities to some extent (second category above) However this would be dependent on where markets were at the time.
- It was noted that Investment Strategy Statements were usually reviewed every three years unless there was an issue.
Fossil fuels:
- Government advice has stated that Funds could be environmentally conscious as long as it was expected that this would not lead to significant financial loss.
- Tower Hamlets Fund already had a low carbon exposure. Carbon exposure would to some extent be accidental depending on the individual stock selection of the manager.
- It was noted that Councils’ had an obligation to invest via the London CIV, however the London CIV had a limited offer in environmentally friendly stocks, ... view the full minutes text for item 7
Meeting: 18/09/2018 - Pensions Committee (Item 6)
Minutes:
Colin Robertson, Independent Advisor, presented a report which detailed the performance of the markets and the Pensions Fund investment managers for the first quarter of 2018/19.
The Committee was advised that the Financial Markets regained their composure in the 3 months to 30 June 2018. The developed equities have recaptured their losses from the last quarter. The USA Market is performing well but Emerging Markets have underperformed significantly. The other Markets (Europe and Japan) are forecasted to have reasonable economic growth. There are still concerns over ‘Trade Wars’ and their effects on supply chains.
With regard to Emerging Markets, Turkey’s political leadership and Argentina’s high borrowing of dollars have contributed to the lpoor performance. Members held discussions on the poor performance of the Turkish Lira and noted that this was attributed to the economic policies pursued by the current government and that there had been a loss of confidence in the Country’s Markets. Following questions from Members, Officers advised the Committee that it was unlikely that the United Kingdom would mirror the same economic policies as Turkey.
Despite strong corporate earnings, equities continued to remain expensive from an historical perspective. The Committee noted that they had purchased ‘equity protection’. Members were advised that at this time the Fund should invest in ‘assets’ which were dependent on the skills of Fund Managers rather than being very sensitive to equity market levels. At present the Fund has a high exposure on equities, preferably this should be reduced.
Members were advised that inflation was being better controlled and that Central Banks were pleased that inflation in the major economies were converging on the widely held 2% inflation target. The Committee was advised that while a Central Bank has the option to raise and cut interest rates to regulate the economy, there were other measures which could be put in place to help such as ‘Quantitative Easing or Tightening’ This had all led to gilt yields being fairly stable although US yields had risen.
The Baillie Gifford equity fund was noted to have performed well and had surpassed its Benchmark once again during the quarter, be it only marginally on this occasion. The relative performance of the LCIV Baillie Gifford and LCIV Ruffer DGF funds in the quarter to 31 March was reversed in the latest quarter. Absolute Return Bonds Funds underperformed and would require continual monitoring. The Schroders Real Estate Capital Partners Fund beat its benchmark by 0.2%.
Following questions from Members, the Committee was advised that they would be required to make decisive action if Funds were not being managed according to specification.
RESOLVED
That the contents of the report be noted.