Issue - meetings

80.1     The Committee considered a report providing an update on the investment activities undertaken by the ESPF. The Head of Pensions introduced the report which includes items relating to the investment workplan and implementing the Investment Strategy. Consideration of the Principles for Responsible Investment PRI submission will be deferred until next year as no submissions are possible in 2022 and the Stewardship Code will be reviewed in June or July.

80.2     The Committee’s discussion included the following key issues:

Investment Performance

·         Market conditions during the quarter were relatively volatile due to the Omicron variant of Covid and the Bank of England raising base rates from 0.1% to 0.25%. Inflation continued to rise with inflation at a ten year high. This may lead to a change in monetary policy in the UK and US to control inflation, which could cause further market volatility. There was a big rotation in markets from a growth style to a value style due to the balance between inflation and growth. UK property saw a strong performance, particularly for operations and logistics.

·         The total Fund performance was a 3.6% return against a benchmark of 4.3%. Given the market conditions this is a relatively strong performance. The investment funds Ruffer and Newton performed well as did M&G diversified credit. Some of the other funds performed less well against benchmark (e.g. Longview, Storebrand, Baille Gifford, WHEB and Wellington).

·         The Committee discussed the performance of the various fund managers and the Investment Strategy to transition to Osmosis in the light of current performance. The Chair noted it was an unusual quarter and the Fund had not historically underperformed against benchmark. There had been good growth in the Fund over the last five years during a period of low inflation. If there is a UK rise in interest rates the Fund will need to consider the impact of that in the medium term and the best way to address this if there is a move into a changed investment environment.

·         The Committee discussed the need to seek the Fund’s equity managers view for the next 12 months and agreed to have a more detailed discussion with Longview about their performance.

Asset Allocation

·         The Fund is overweight to equities and there is a significant overweight to absolute return, which will add to the risk to the Fund due to the macroeconomic outlook and volatility of the markets. This may require there to be some rebalancing of the asset allocation with an increase in infrastructure investments, which has been discussed with officers but not implemented yet. The increase in infrastructure is to be funded from absolute return. Ruffer will perform well in a higher inflation environment, so it may be more prudent to fund the increase in infrastructure from Newton which has a higher correlation with equities.

·         The Committee discussed the need to have a rebalancing policy so that Officers can take action to rebalance investments between Pension Committee meetings. The Committee agreed that it was happy to have such a  ...  view the full minutes text for item 80