There were no declarations of pecuniary interests.

The Committee received a report on recommendations for equity protection. Kevin Bartle (Divisional Director of Finance, Procurement and Audit) introduced the report. He summarised that in 2018 a decision was made by the Pension Committee to implement an equity protection strategy because a valuation was approaching and market conditions were performing favourably enough to implement a strategy for good value.

It was noted that the equity protection strategy was due to expire in March 2020 and the committee would have to make a decision on whether it wanted to renew the protection or allow the protection to naturally roll off because it had fulfilled its purpose.

In addition, if the committee decided not to renew the protection strategy, it would have to decide on how to handle its equity exposure on the gilts held with Schroders. The following options were presented for consideration:

1.    Send equities back to Legal & General for investment according to the previous arrangement. 

2.    Invest in low carbon equites at Legal & General

3.    Maintain exposure at Schroders for a short period whilst considering alternative options.

Officers explained that markets were rallying due to the recent US-China trade deal and a cut to FED rates. They said the existing equity protection had hit its cap and was no longer benefiting the Fund. It was noted that equites tended to fare better in the long term and remain low in the short term.

In order to help inform the decision, the Committee received a presentation from Steve Turner (Investment Consultant Mercers) on approaches to equity risk management, a market view and a summary of the funds existing protection strategy.

Options presented to the Committee included:

·         An asset based solution – this was not recommended.

·         Static Hedging – this was a fixed term protection structure, equities would be protected up to a certain percentage.

·         Dynamic Hedging – this was explained to be similar to static hedging but rolled on. The protection level would change if markets went up. Officers said this was extremely complicated and would not recommend it.

Members asked why the valuation date was significant. Officers explained that the valuation was a financial health check to see if the there was enough money to make pay outs in a crisis situation. A valuation was a legal requirement and had to be carried out every three years.

Officers advised that if the Committee wished to implement a protection strategy, it would be best to do it now as the cost for protection would be lower in the current more stable market.

 It was noted the cost of the existing equity protection and benefits would be published on 18 March 2020.

The Chair summarised that the Committee’s most feasible options were to either let the protection roll off or initiate a static hedging approach. 

Mercers advised that from an investment perspective, a protection strategy was prudent but was not an immediate concern. They suggested that a review on equity protection be put into the Business Plan eighteen months before  ...  view the full minutes text for item 2.1

There was no other urgent business discussed.