67.1 The Committee considered a report providing an update on investment activities undertaken by the East Sussex Pension Fund (ESPF).
67.2 The Committee discussion included the following key issues:
· The stock markets were currently highly volatile and had not yet been able to quantify the economic impact of Covid-19. Considerable losses and subsequent gains had occurred over the previous week, although overall the markets were trending considerably downwards and the Fund’s gains on UK and oversees equities for 2019 had been largely lost.
· The Fund’s two absolute return managers – Newton and Ruffer – had been less affected than other investment managers due to their investment in assets other than equities.
· Other risky assets the Fund invests in are also likely to be affected by Covid-19, such as high yield credit and some lower grade investment-level credit, although the impact may not be known for some time. Lower long term bond yields have increased fund liabilities both in the long term and possibly short term (the discounted value of future liabilities is higher due to using a lower long term interest rate to discount). Higher bond yields would have the effect of reducing liabilities. Lower investment asset values have also undermined the funds position, while increased mortality might improve it at the margin. The Actuary suggested that the funded position may have deteriorated by 10-15% from its 108% as of the triennial valuation. The Committee felt this was still a respectable coverage.
· The Fund was well diversified, and the investment advisers and independent adviser both believed that it was not advisable to make any investment decisions until markets had settled down and the impact of expected Government intervention had become apparent.
· The immediate impact on the Fund is likely to be to its cash flow, as dividends, a considerable source of cash to the fund, may not be paid due to the fall in equities. This would be considered during any future plans to change the Fund’s strategic asset allocation.
· The Committee agreed that there is a need to review the strategic asset allocation of the Fund, which is currently around 65% in growth assets, and that Members of the Committee should be involved in the process of modelling the outcomes of different asset allocations. The Committee agreed to create a working group of Cllrs Fox and Tutt, the Independent Advisor, Interim Head of Pensions, Chief Finance Officer and other relevant officers to perform this task and report back to the Committee with recommendations. The Committee also agreed the sub group should make recommendations to the Committee to address other longer running challenges to the Fund such as 3-5 year cash flow forecasting. The sub-group will also seek the advice of the Fund’s investment consultants.
· The Committee agreed that, although there was currently no plan to do so, there could be a need to act urgently to change investment policy before the next meeting of the Committee. Therefore, it was appropriate to delegate matters relating to pension investment to the Chief Finance Officer in consultation with the Chair and the Fund’s investment advisers until the next meeting of the Committee. The Committee also agreed that they would need to be briefed ahead of any decision.
· The Committee would be provided with regular updates by email on the status of the Fund in the coming weeks.
· The Committee agreed that meeting the new tier 1 UK Stewardship Code standards would require significant resource that the Fund does not currently possess. It would therefore be more appropriate to encourage the ACCESS pool to sign up to the UK Stewardship Code. This would be achieved through lobbying other members of ACCESS via the ACCESS Joint Committee and Section 151 Finance Officer working group.
67.3 The Committee RESOLVED to:
1) note the report and appendices;
2) approve the Pension Fund Action Log and Workplan;
3) invite a representative from the UN
Principles of Responsible Investment (UNPRI) to
present at future Committee meeting;
4) recommend that ACCESS signs up to the UK Stewardship Code;
5) Delegate to the Chief Finance Officer in consultation with the Chair and investment advisers decisions relating to management of the investment of the pension fund and any other urgent decisions until the next meeting of the Committee;
6) request that the Chief Finance Officer provide regular updates to the Committee on matters relating to pension investments up to the next meeting of the Committee including briefings ahead of any decisions taken by the Chief Finance Officer relating to management of the investment of the pension fund; and
7) agree to establish a working group to advise the Committee on future strategic asset allocation, 3-5 year cash flow forecasting, and other strategic issues, comprising Cllrs Fox and Tutt, the Independent Advisor, Interim Head of Pensions, Chief Finance Officer and other relevant officers.