Agenda item
PRESENTATION: VIEWS ON CURRENT FUND INVESTMENT STRATEGY AND DIVESTMENT CONSIDERATION PROCESS FROM THE FUND INDEPENDENT ADVISOR - COLIN ROBERTSON
- Meeting of Pension Board, Monday, 26th November, 2018 10.00 a.m. (Item 7.2)
- View the background to item 7.2
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, this may present a dilemma for a local authority.
- Bola Tobun, Investment and Treasury Manger, said the London CIV were planning a fossil fuel free equity fund in second quarter next year however this would be dependent on demand as was an expensive process.
RESOLVED:
- To note the presentation.
Supporting documents: