Agenda item

12.1     The Committee considered a report introduced by Russell Wood and Andrew Singh who drew the Committees attention to the following points:

1)    The work plan for the Committee is likely to change following the strategy day in July.

2)    Quarter 1 for 2023 was a lot more stable than the last two quarters in 2022 which was driven by more optimistic investor sentiment.

3)    The significant wobble across the globe towards the end of the quarter following stresses in the US banking sector however there was quick reaction from the US Fed and other US banks.

4)    For the UK, the returns for long-term gilts and long-term inflation linked gilts were slightly positive following very negative returns at the end of last year therefore have seen interest rates fall slightly in quarter 1 and have now started to increase again.

5)    The performance across the Fund in quarter 1 was mixed with Wellington and Schroders Property being the most significant under-performers and strong performances from Osmosis, Storebrand and ATLAS.

6)    Quarter 1 has been challenging in terms of achieving a 1.5% return compared to a benchmark of 3% however over the long-term there are stronger returns.

7)    In January, the Fund implemented the strategic decision to appoint IFM to manage the Fund’s infrastructure equity mandate which brings the strategy more in line with the target benchmark.

8)    The liquid credit implementation was discussed earlier this year and the decision was to delay further discussion or implementation until after the strategy day in July.

9)    The formal asset allocation review is due to take place in July 2023 and a paper will be presented to the Committee at the next meeting.

10) The key piece of work regarding fossil fuel divestment and engagement is due to be presented to the Committee in July at their strategy workshop.

11) There was an investment made in mid-May to reduce the equity actual position by 1% by taking 1% from Longview and purchasing index linked gilts following a previous decision by the Pension Committee to implement a phased trigger framework to increase index linked gilts.

12) There have been manager updates for Ruffer and Wellington. Ruffer has undergone an organisational change to spread the ownership structure across 50 other partners within the business however Jonathon Ruffer is still involved in decision making. Wellington has undergone a change in portfolio management team with the portfolio manager who will be managing another Wellington product and one of the analysts in the team will be stepping up to manage the fund without his position being backfilled.

12.2     The Committee noted that the report will be reissued to show Newton and Ruffer in the chart on individual manager performance showing volatilities versus returns.

12.3     The Committee discussed the performance of the Fund versus its benchmark following substantial changes to the Fund Strategy and noted that it would be useful to discuss what is causing the changes to the Fund’s performance in relation to its benchmark at the strategy day in July.

12.4     The Committee discussed private equity valuations and noted that public market funds tend to overshoot however it is important to look for independent valuations.

12.5     The Committee requested more detail at the strategy day regarding how valuations are taking place, the divergence between private and public markets and to look more closely at the commercial property assets including what the risks are.

12.6     The Committee noted that Wellington has been downgraded to amber and there will be an update provided to the Committee in September.

12.7     The Committee RESOLVED to note the report.