Agenda item

43.1     The Committee considered a report providing an update on the investment activities undertaken by the Fund.

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

• Isio is monitoring Longview’s performance closely, however, their performance is not unexpected as their portfolio does less well when technology stocks are high and interest rates are low. The fund manager has had a couple of senior team changes and a junior member left too, which is not a problem at the moment, however, if there are further departures there could be a need for a review of the situation.
• WHEB has underperformed due to not holding sectors like oil and gas that have performed well in the past Quarter. WHEB’s benchmark is the MSCI World global equity index. Wellington is using the same benchmark and has not performed as poorly, which shows that despite both being chosen as global impact funds that tilt away from fossil fuels, they have different stock selections, which is beneficial for the risk exposure of the Fund.
• The UBS infrastructure fund has performed poorly in the past quarter in part due to the fine imposed on Southern Water, which comprises a substantial element of the fund in which ESPF has £30m invested. Since its inception, the performance of the fund has been 4.3%, which is lower than many other funds in the portfolio. The strength of the secondary infrastructure market at the moment is very buoyant and the Fund could conceivably sell the UBS infrastructure fund without needing to provide much of a discount.
• UBS are due to set up an index run by Osmosis within the ACCESS pool and transfer the ESPF’s passive market cap fund into it, as agreed by the ESPF in June. Osmosis has been working with UBS to come up with a solution where UBS remains the manager within the ACCESS Passive offering, in accordance with the requirements of LGPS pooling, whilst using the Osmosis index to ensure ESPF gets the exposure it wants. However, there have been delays to this process and issues remaining between both parties that means that it will not be completed during October as planned.  Further discussions between ESPF, UBS, Osmosis and Isio may be needed to continue to move the process forward.
• The ACCESS pool has commissioned Minerva to develop a high-level set of Environmental, Social and Governance (ESG) principles for all of the 11 LGPS funds in the ACCESS pool to sign up to. There is confidence these will not be lowest common denominator principles and that individual funds generally appear to want to improve their current ESG commitments.  ESPF will not need to replace its own ESG investment principles with those of the ACCESS pool if they are less robust.
• All LGPS funds remain sovereign entities but are expected by the Ministry of Housing Communities and Local Government (MHCLG) to make any new investments within their pooled fund unless investing in the pooled fund would compromise the fund’s investment principles, or prevent it from achieving its investment strategy, and there is an asset type or product that is only available outside of the pool. Evidence would also need to be supplied that any outside investment is not too costly, or will not take too long to divest from should a similar product become available within the pool. ACCESS is not as developed as other pools, so the Fund took this approach of investing outside the pool when it invested in the ESG focussed equity funds WHEB, Wellington and Storebrand, as ACCESS had no equivalent products within its sub-funds. The MHCLG would also expect individual Funds to influence investments within their pools as a first course of action so that they are able to fulfil their investment strategies and deliver economies of scale through pooling. To this end, there is some evidence that other funds in the ACCESS pool may be interested in the global impact funds that ESPF invested in.
• The Statement of Responsible Investment Principles (SRIP) must be refreshed each year to reflect any decisions taken during the year, however, it is not possible to review in full each year. The Committee discussed reviewing the SRIP on a triennial basis starting from the completion of the triennial valuation of the Fund, the climate simulation work, and the agreement of the ACCESS ESG principles. This work is expected to be completed by the end of 2022.

43.3     The Committee RESOLVED to:

1)    note the report; and

2)    Approve the changes to the Investment Strategy Statement (appendix 4); and

3)    Agree to review the Statement of Responsible Investment Principles (SRIP) on a triennial basis from the end of 2022.