Agenda item

Report of the Director of Finance

The Committee received a report of the Director of Finance and Assurance, together with confidential appendices, and an updated Appendix 5 which was included on a supplemental agenda and which was considered as a matter of urgency.  The report updated Members on:

·                 the draft work programme inviting Members’ comments and agreement;

·                 the investment performance dashboard report summarising key fund statistics and data, and risk indicators;

·                 PIRC (Pension and Investment Research Consultants Ltd performance to 30 June 2022 and

·                 the meetings of the Pension Board.

An officer introduced the report and referred to the confidential appendices which would require further discussion in the private session of the meeting.

The officer stated that the work programme would be updated in accordance with discussions at the training session the previous day.  It was agreed that the revised dates of meetings of the Committee for the remainder of the 2022/23 municipal year be circulated.

The Committee was informed that the estimated funding level had improved since the 2019 valuation and the probability of being able to meet the liabilities in full in 20 years’ time had increased.  No de-risking actions were recommended at the present time.  The summary indicated that 78% of the Fund was managed by the London CIV or passive fee arrangements.

In response to a question from an Independent Adviser as to whether a 50% hedge should be retained, the officer stated that he had contacted Aon who had advised that, in essence, if it was from scratch the answer would be no, but it was not appropriate to take the hedge off at this time.  The Aon representative stated that the 50% hedge was to protect against volatility arising from currency fluctuations rather than the underlying equities and that when the dollar strengthened the currency hedge had a negative impact, and the opposite happened when sterling strengthened.  Although there had been a loss on the  currency hedge this was offset by the higher sterling equivalent value of the overseas equities, and given that sterling was at historically low levels the hedge should be retained.  An Independent Adviser stated that it was a strategic decision to hedge this exposure, and it had been taken because most of the equity portfolio was invested in overseas equities.

In response to a request, the officer agreed to circulate the 30 September   valuation as soon as it was available.  The officer stated that although market movements had reduced investment asset values, they had also reduced the value of liabilities, and the health of the pension field was good.

An Independent Adviser highlighted that the movements in markets meant that equities were now towards the upper end of their strategic range, and that risk control assets (fixed income) were towards the lower end, and hence rebalancing to the strategic benchmark should be considered.  The representative from Aon supported this view and suggested that they work with officers to achieve this.

In response to queries about pooling of investments via the London CIV, , the Committee was advised as follows:

·                 the DCLG had determined that LGPS funds should be grouped into a number of ‘pools’ and it was felt that having 89 individual LGPS funds was inefficient and that having some groupings would drive fund management costs down through combined purchasing.  It would also lead to a sharing of resources and facilitate investment in infrastructure which was a key part of the government’s agenda. It was accepted that this would take place over a number of years.  At this time Harrow has pooled a similar proportion of its investments to most London funds;

·                 the timing and direction of travel depended on the current pensions minister.  The representative from Hymans Robertson advised of a backlog at DLU, meaning that the planned LGPS consultation including pooling was still to be drafted.  The consultation on TCFD was in progress. Some pools worked together on certain asset classes eg London CIV and LPP had collaborated on the ‘London Fund’.

RESOLVED:  That

(1)            the Work Programme for the remainder of 2022/23  be agreed; and

(2)            the officers work with Aon to rebalance the Fund’s equity and risk control assets back to the strategic benchmark.