Agenda item
INVESTMENT AND FUND MANAGERS PERFORMANCE REVIEW FOR QUARTER END MARCH 2019
- Meeting of Pensions Committee, Thursday, 20th June, 2019 6.30 p.m. (Item 8.2)
- View the background to item 8.2
To receive a report outlining the Quarterly Investment Performance
Minutes:
The Committee received and noted a report that provided details of the performance of the pension fund managers and the overall performance of the Tower Hamlets Pension Fund. Whilst there are no direct financial implications arising from this report, the long term performance of the pension fund will impact upon pension contribution rates as set by the Committee. The main points of the report may be summarised as follows:
i. Investments managed under the London Common Investment
Vehicle (LCIV) pooling arrangement
a) LCIV Global Alpha Equity Fund - Baillie Gifford (BG GA)
Managed under the LCIV pooling arrangements, the market value of the assets as of 31 March 2019 was £345.890m. The portfolio outperformed the benchmark by delivering a return of 12.39% compared to a benchmark return of 9.64% over the quarter while underperforming against the one-year benchmark return by -1.69%. However, it outperformed the three-year benchmark return by 3.73% per annum and the 5 year benchmark return by 2.41% per annum.
Over the 12-month period to 31 March 2019 the top contributors to performance in the portfolio were Amazon Corporation, Anthem Inc and Advanced Micro Devices. Over the same period the top detractors to performance were Prudential, Ryanair, Zillow and Microsoft.
b) LCIV Diversified Growth Fund - Baillie Gifford (BG - DGF)
Market value of assets as at 31 March 2019 was £136.822m. Quarter ending return of this portfolio was 6.14% with relative outperformance of 5.09% above benchmark return of 1.04%. This portfolio underperformed the one-year benchmark by -3.78%, but outperformed the three year benchmark return by 1.15% per annum and by 0.61% per annum over 5 years. The portfolio invests in a range of asset classes.
c) LCIV Absolute Return Fund – Ruffer Ltd (Ruffer LLP)
The value of assets under management as of 31 March 2019 was £130.574m. The portfolio outperformed the benchmark by delivering a return of 3.15% compared to benchmark return of 1.04% over the quarter while underperforming against benchmark on the one year by posting a return of -0.55% against a benchmark return of 4.06%. Over 3 years the portfolio outperformed its benchmark by posting a positive return of 3.71% per annum and posting 3.72% per annum, slightly ahead the benchmark by 0.11% per annum for over 5 years period.
d) LCIV Multi Asset Credit - MAC Fund
Tower Hamlets Pension Fund transferred £90m on 29 May 2018 to London CIV to invest in LCIV (CQS) MAC which was launched 31 May 2018. The portfolio had a market value of £91.8m at 31 March 2019.This portfolio delivered a positive return of 2.65% over the period and outperformed its benchmark by 1.29%.
ii. Goldman Sachs Asset Management (GSAM)
The portfolio had a market value of £52.542m at 31 March 2019. The portfolio outperformed the benchmark in the reporting period by posting returns of 2.66% against a benchmark return of 1.29% and underperformed the benchmark for one year to reporting period considerably by -4.93%.
The largest contributor to performance was the interest rate exposure and cross sector asset allocation exposure to corporate credit.
iii. Insight Investment Management
The portfolio had a market value of £46.901m at 31 March 2019. The portfolio underperformed the benchmark in the reporting period by posting returns of -0.39% against a benchmark return of 1.29%, the portfolio also underperformed its benchmark for one year to reporting period, significantly by -10.54%.
The largest detractor to performance over the period was country allocation. The largest contributor to performance was the long position in investment grade credit, which benefitted from a narrowing of credit spreads. Insight performance has been greatly disappointing and has struggled to meet its benchmark return or target since inception.
iv. Legal & General Investment Management (LGIM)
As at 31 March 2019, the Unhedged Passive Global Equity portfolio had a market value of £82.853m; the Low Carbon Passive Global Equity portfolio had a market value of £244.708m and the Hedged Passive Global Equity portfolio had a market value of £22.795m. As expected from an index-tracking manager, all the portfolios matched the benchmark returns. Low carbon equities marginally outperformed normal market cap equities over the quarter.
v. Schroder’s Investment Management Property Investment
The market value of assets at 31 March 2019 was £161.655m. The fund has performed well over all periods under review. The industrial sector continues to be the strongest positive driver of returns over recent periods.
The manager made no purchases over the quarter and continues to disinvest from weaker performing funds within sectors that are poorly aligned with their house view (the fund sold a further £0.7m from the Standard Life Pooled Pension Property Fund over the period).
vi. Equity Protection Strategy – In September 2018, the Fund implemented the equity protection strategy by investing in Schroders Bespoke Pooled Vehicle to manage equity downside risk on the Fund total equity holdings of £718m at the time with an option overlay, also establishing long synthetic equity positions of some £142m.
The equity protection strategy is designed, on average, to help protect against losses of some 15% on a portfolio of the Fund global equities, after suffering an initial 5% loss. The Fund would start experiencing losses again after equities have fallen by 20%. The exact levels of protection vary by equity region but the US is the most important one.
The objective of the strategy is to provide more certainty around the value of the equity assets during the Actuarial Valuation review in 2019 and in effect help protect strong gains in recent years. The equity protection expires at the end of March 2020, and will need to be review in Q4 2019 to consider if the current strategy simply finishes or is continued in some way.
As at 31 March 2019 the value of the strategy was £717.3m compared to starting position of £718m in September 2018 and the net assets value of the Fund was £233.8m compared to £214.66m.
RESOLVED to note the report.
Supporting documents: