Agenda item

60.1    The Committee considered a report introduced by Russell Wood, Pensions Manager and Andrew Singh ISIO, who drew the Committee’s attention to the following points:

1)    The Investment work plan has focused on the divestment report, UK stewardship code submission which was successful with the report now published on website. The Committee congratulated officers on being listed as a signatory to the UK Stewardship Code which puts the ESPF ahead of many other Local Authority funds.

2)    The new infrastructure investment through IFM is not in quarterly report as funding was allocated in early January 2023.

3)    ACCESS have agreed their budget and business plan and is included in the appendices to the report.

4)    Quarter 4 market conditions were more positive, UK equities performed strongly, there has been a bounce back following mini budget in October 2022 and stability returned to the bond market, and there was a slight drop in inflation.

5)    It is a very difficult market for UK commercial properties, the position has improved from 6 months ago but still muted, so officers and advisers are closely watching for appropriate ting to reduce the property mandate to the revised strategic asset allocation target.

6)    Since the last reported position, the valuation of the Fund has decreased from £4.502bn as at 30 September 2022 to £4.496bn as at 31 December 2022 (a decrease of £0.006bn). This performance reflects a negative absolute return of -0.1% in the quarter to December. The Fund marginally underperformed its benchmark in the period by -0.2%.

7)    Despite negative returns over recent quarters, longer term returns at Fund level remain strong, with equity assets adding significant value over the last decade, and unhedged exposure also having benefited from the depreciation in Sterling.

8)    Regarding the overall asset allocation position; property and private credit are underweight and there will be further discussion on private credit later in the year. The Schroders property fund, although posted a significantly negative absolute return over Q4 the portfolio outperformed the benchmark by 6% over the period. Some further price falls expected within the commercial property market before stabilisation later in the year. A discussion took place on valuation of the asset class where it was discussed that some information is not publicly listed, independent valuers will make their own assumptions and have different levels of prudence.

9)    Longview and Atlas provided strong absolute returns (5.3% and 9.3% respectively) and relative returns to the benchmark (3.5% and 7.7%) for the quarter.

10)  The Committee welcomed the asset allocation information

11)  Regarding the performance of utility companies including water companies, as regulated utilities the Regulator has a role to moderate returns if they get too high, companies fall into two categories and the effective companies generate better returns

12)   Regarding the Strategy re-test; following the shift in market regime to a higher interest rate environment over 2022, ISIO prepared a short paper on the potential opportunity within the Index-Linked Gilts market. The yield triggers to exploit this opportunity, should it occur again, have been agreed by the Committee. UBS are due to come back to Officers with a monitoring and implementation proposal for the allocation very soon.

13)   ISIO will prepare a detailed paper on the broader strategic asset allocation of the Fund and the appropriateness in the current market environment, for the July strategy day.

14)   The Committee will receive a full exempt report considering the legal and financial implications of divestment to consider for the strategy day in July and a public report will follow later in the year.

15)   Regarding the Engagement report; this is published each quarter, ESG is considered for the entire Fund, sample examples are given within the published information each quarter covering a range of ESG topics. When timing allows, this information is appended to reports for Committee packs. The team meet with managers and engagement on ESG matters is a key part of the meeting.

16)   It was confirmed that comments about the fiduciary duty of the fund were made in relation to divestment for non-financial reasons.

60.2       The Committee RESOLVED to note the investment report.