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47.1.      The Board considered the Pension Committee’s agenda, which included a report on the latest version of the Investment Strategy Statement (ISS).

47.2.      Ola Owolabi (OO), Head of  Pensions, explained that the Pension Committee is due to consider amendments to the Investment Strategy Statement (ISS) in relation to changes to its investment allocation and whether to embark on stock lending.

47.3.      Councillor Brian Redman (BR) asked for clarification as to why UBS was charging the East Sussex Pension Fund (ESPF) £400k to transfer the passive investment funds from State Street and Legal & General. OO explained that as part of the ACCESS pool, 8 Local Government Pension Schemes (LGPS) funds, including the ESPF, agreed to transfer £10.5bn of passive investment funds to UBS and the transition fee for this asset transfer had apparently been waived. The Pension Committee, however, at its last meeting agreed to allocate 5% of its passive funds into a separate climate aware fund held by UBS in addition to other assets allocation, which has resulted in the proposed charge of £400k.  OO said that officers and the Pension Committee would continue to challenge this cost, as are other local authorities within ACCESS.

47.4.      The Pension Board agreed that there should be an attempt to waive the £400k transaction cost. The Chair said that officers should try to negotiate the cost in light of the considerable sum of passive investments being transferred to UBS, and the risk that there may be other attempts by investment managers to claw back the savings ACCESS will achieve by reducing fees through economy of scale.

47.5.      Angie Embury (AE) asked for clarification whether it was a requirement to invest in climate aware funds. OO said that it was at the Pension Committee’s discretion whether or not to invest but there were a number of advantages in doing so.

47.6.      AE asked for confirmation whether the ESPF had any investments in Carillion. OO said he was not aware that there were but would speak with the investment consultant (Hymans Robertson) to confirm that this was the case. 

47.7.      The Chair asked for clarification as to why the Pension Committee was being asked to agree to undertake stock lending having not previously done so. OO explained that 8 of the 11 pension funds in the ACCESS pool already engaged in stock lending.  This would mean that if ESPF were to stay out of stock lending it would need to create a separate sub-fund within ACCESS and pick up the cost of running it, rather than share the risk amongst the other 10 funds.

47.8.      The Chair said that he hoped that the Committee would be satisfied that the income from stock lending would be greater than the cost of creating a sub-fund and sufficient to offset the risk of stock lending. He added that he hoped that any risks would be suitably minimised by the way ACCESS engages in stock lending, and that ESPF would retain a say in how it was run via the ACCESS Joint Committee.

47.9.      OO assured the Board that following any decision by the Committee that the ESPF would engage in discussions with its investment consultants – Hymans Robertson – about the risks involved in stock lending. He said that there was no expectation to jump into stock lending from 1 April 2018 (when ACCESS formally begins) rather sometime within the next 18 months to two years. If the Committee agrees to amend its ISS now, the ESPF will be poised to enter stock lending once it is ready to do so. 

47.10.   The Chair observed that there had not been any scandals regarding stock lending in the past 25 years, and OO added that the process has become more highly regulated since the stock market crash in 2008.

47.11.   Sue McHugh (SM) asked for clarification why the Committee agreed to target an increase in the percentage of the fund invested in infrastructure. OO explained that this will always be a local decision and was not entirely in response to any government mandate, but also in relation to a commitment of ACCESS to be ambitious in its investment in alternative investments.  Hymans Robertson reviewed all alternative investments – such as property, private equity and infrastructure – and recommended an increase in infrastructure from 2-4%. He added that most funds believe that their infrastructure allocation will remain under 10% over the next 10 years as there are not sufficient opportunities available to make significant infrastructure investments.

47.12.   Councillor Richard Stogdon (RS), Chair of the Pension Committee, welcomed input from the Pension Board.

47.13.   The Board RESOLVED to note the report.