Report of the Director of Finance and Assurance
The Committee received the report which provided updates on regular items as follows:
· Draft work programme for 2023-24.
· The investment and management performance dashboard report summarising key fund performance and risk indicators and PIRC Performance Indicators. This was reviewed and an Independent Adviser commented that the methodology underlying the PIRC report meant at least some of the report was rather meaningless. It was agreed this should be pursued.
· Fund performance to 31 December 2022 and 31 January 2023 and updates on the Pension Board and Audit of the Annual Report and Accounts for 2021-22.
The officer also gave the following highlights:
· On the quarterly update draft work programme 2023-24, the officer explained that dates for future meetings of the Committee in the 2023-24 municipal year were yet to be agreed and the Committee would be updated accordingly.
· The paper on the Investment Strategy Review had recommended a detailed session to draw out the Committee’s preferences for developing the strategy ahead of the June Committee meeting. Also, advised that the Committee may consider having a “manager review day” this year. The Chair and Members were quite keen and felt that “a manager review day” would be quite useful. The officer agreed to look at possible dates for the session.
· He further explained that the investment dashboard showed that the Pension Fund’sestimated Investment Funding Level of 112% as at 31 December 2022 and the fund assets (£928m) and liabilities (£825m). He explained that this was due to the fact that the increase in interest rate expectations had reduced the valuation of the liabilities while the value of the assets had increased. The value of the investments had since increased to just under £950M by end of February. He advised that there had been some volatility in March due to the impact of bank failures in USA and the takeover of Credit Suisse by UBS.
· There were a number of small consultations from the government since December. The anticipated major consultation on Pooling was yet to occur. It was expected that the government may be mandating stricter requirements on Pooling.
· The audit of the Fund’s draft Annual Report and Accounts for 2021-22 was being carried out by Mazars. This audit was largely complete – there had been no material changes to the draft accounts presented to the Committee in October 2022. However, the audit could not be completed until the audit of the Council’s own accounts was finalised – the reason for this being that the auditor was required to confirm that the Pension Fund Annual Report and Accounts aligned with the Council’s main accounts, and there were some technical issues being worked through in respect of the latter. Other LGPS funds and administering authorities were experiencing similar issues.
· Investment activity during this quarter involved rebalancing the asset allocation towards the benchmark by selling equities and buying index-linked gilts and corporate bonds. It also involved funding drawdowns for the London CIV Infrastructure Fund and the LCIV Renewables Infrastructure Fund through a mixture of cash and withdrawal from the Insight fund.
· A Member asked and received clarification on CARE benefits as detailed in Paragraph 28 on page 21 of the agenda.
· Members asked about the impact of the banking crisis in the US and the Aon representative made the following comments. Concerns about inflation had led central banks to raise interest rates aggressively from 0% to 4%-5%. This was a very big and unexpected adjustment and had led to concerns about recession and caused disruptions, notably in the banking sector and especially with banks which had mismatched liabilities and assets. Steps the regulators have taken in the USA have been encouraging, including guaranteeing deposits at SVB and HSBC buying some parts of the operation. The rescue of Credit Suisse had an impact on Additional Tier 1 bonds but generally the problems seemed contained at present although the situation was being closely watched. The fund had some exposure to the banks concerned. The officer explained that the fund had specific exposure in the fixed income markets – the London CIV Alternative Credit Fund (which is the CQS MAC Fund) had a meaningful exposure to Credit Suisse Additional Tier 1 bonds. PIMCO had a smaller exposure but was unable to provide specific details at this time. The bigger risk was a wider contagion from recent events.
· The chair advised that the impact of the problem with Credit Suisse should not be underestimated.
· An Independent Adviser explained that one cause of weakness in financial markets was a loss of confidence in central banks and their ability to cope with high inflation.
· An Independent Adviser asked if valuations would be adjusted to reflect the eradication of the Fund’s bank Additional Tier 1 holdings. The officer explained that The London CIV would advise as to write offs by fund managers but presently only Credit Suisse bonds were being written down to zero.
(1) the performance and investment dashboard report be noted;
(2) the draft work programme for 2023-24 be approved.