Agenda item
Investment Strategy Training
Minutes:
The Pensions Board received a training presentation from Joe Peach and Josh Tipper from Aon, a professional services firm providing a broad range of risk, retirement and health solutions. They provided an oversight relating to the investment strategy, in terms of what the strategy should include, the setting of objectives and the timeline for achieving this. The presentation also highlighted the importance of producing an Investment Strategy Statement and the Pension Board’s relationship with the Pensions Committee and the London CIV.
The main points arising from the presentation were:
- With the pooling of funds, the selection and monitoring of managers fell to the London CIV rather than the Pensions Committee and Board.
- The Investment Strategy should be a long-term policy which should be reviewed every three years to ensure it is fit for purpose.
- The Investment Strategy aim should be to eliminate the gap in funding. The Tower Hamlets LGPS is in the enviable position of being 100% fully funded. Therefore, it ought to be thinking of what is required to maintain this position.
- The Investment Strategy aims to keep in balance the investment returns and contributions made. For example, aiming for higher investment return and lower contributions today, may mean there is a higher risk of not achieving the desired returns in the future.
- The Strategic Asset Allocation, Medium Term Allocation and Manager Selection underpin the Investment Strategy. Key decisions relating to the long and medium-term goals will affect the outcome of returns achieved.
- In respect to risk and return there is a trade-off between the two. Diversification helps in optimising this risk and there is no ‘riskless’ return. Risks should be considered within the framework of liabilities.
- A chart showing the risk and return showed risks which were higher risk assets and those considered to be lower-risk assets.
- The factors to consider before investing in an asset class were explained to the Board Members.
- An overview was given regarding CIV’s and how the asset pools have been set up. London CIV had a fund supermarket approach and had more discretion as to which managers to invest with.
In response to questions from members the following was noted:
- There are different asset classes, and some are riskier than others however the reward for this is a higher return. The Investment Strategy should contain a blend of high-risk assets, and lower risk diversified assets such property.
- In reference to the slide on risk and return and which component/ asset class was the most vulnerable from the global pandemic, Mr Peach stated the risk and return chart was showing the long-term projection of assets, their risk and possible returns. He said whilst the pandemic is a short-term risk, he expected markets to normalise over the long-term.
- Referring to the chart, the Chair asked why ‘infrastructure’ was placed in the higher returns area. Mr Peach explained that this was in reference to private equity being locked for a period of ten to fifteen years and covered a wide range of areas, such as green field development whereas brown field development is considered as income generation and would be closer to the property asset area on the chart.
- With respect to income generation, Mr Peach explained when considering the investment strategy, it was important to consider private equity and infrastructure asset classes as these would give a higher return. He said income generation was possible from bond assets such as property debt, multi-asset credit and private debt where the investment was locked in for a short period of time. He said it was important to look at other areas which the Board/Committee had not considered before.
- It was stated the chart showed the net of fees growth and when investing this ought to be taken into consideration as some asset classes attract a higher fee.
- In relation to what interest the Pensions Regulator had taken concerning the open benefit scheme like the LGPS and the high level of equity investments, Mr Peach said historically the regulator had not got itself involved with the LGPS and the level investments made.
- Mr Gray asked if the Chair of the Pensions Committee could attend a future Board meeting to speak about the governance and monitoring role they undertake in relation to the London CIV and comment on the effectiveness of their performance.
- ACTION: The Board members concurred the Chair of the Pensions Committee ought to attend a future Board meeting to explain the governance and management monitoring role they undertook as part of the London CIV’s performance. The Board also agreed to invite the London CIV to a future meeting as well, separately to the one attended by the Chair of the Pensions Committee.
- ACTION: The Chair requested the slides from the presentation be circulated to the Board members.
The Chair thanked Mr Peach and Mr Tipper for their presentation.