Agenda item

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

1)   The investment work plan is likely change following the consultation announcement.

2)   As at 30 September 2024 East Sussex had a total of £3.0bn (59.6%) in ACCESS governed investments, £2.1bn across 7 ACS sub-funds and a further £0.6bn through the UBS passive arrangement along with £0.3bn in a pool aligned infrastructure investment.

3)  Global equities ended the quarter strongly, despite experiencing a sell-off in August 2024 driven by weak US jobs data and an unanticipated interest rate rise in Japan. Central bank rhetoric quickly eased concerns, with the US recovering strongly. Emerging Markets were buoyed by Chinese stimulus measures announced in September 2024 to reverse the region’s recent slowdown.

4)  Fixed income markets benefitted from central banks beginning to cut interest rates, with risk-on sentiment further benefitting valuations as credit spreads marginally tightened.

5)   UK gilt yields fell over the period amid hopes of economic growth and stability under the new Labour government, coupled with the expectation of further near-term rate cuts. However, the most recent inflation figures released on 20 November 2024 were slightly higher than expected and therefore interest rates may not drop at the previously predicted pace.

6)   The US election had a muted effect on the markets, though the US market reacted positively, and WHEB was impacted by concerns around the result.

7)   Most of the public equity managers posted positive absolute and relative returns with Wellington performing the strongest, whilst WHEB produced negative absolute and relative performance over the quarter, continuing their current underperformance. Baillie Gifford also performed better than previously.

8)   The private equity mandates have continued to struggle relative to their benchmarks over the last 12 months, with Adams Street the standout detractor.

9)   The infrastructure mandates have returned relatively negative performance over the quarter with UBS’s performance the standout detractor. Of the managers that have been in place for the longer term, M&G infrastructure and UBS infrastructure have most significantly underperformed benchmark.

ACCESS

10) The Fund’s Property assets transitioned to the pool’s selected investment manager on 1 October 2024 and will eventually be transitioned to direct property holdings in the pool over a number of years.

11) The Fund is working with the pool on Private Credit and other asset classes to increase the investments that are pooled across more illiquid asset classes and more will be known after the next Access meeting.

12) Officers confirmed that ACCESS has its own Responsible Investment guidelines which managers have to vote in line with.  Most of the Fund’s votable assets are pooled so managers have to comply or explain with the ACCESS guidelines. A revised voting policy  was agreed in September 2024 at ACCESS which contains much more detail than the previous version. It is expected to be implemented by investment managers by end of January 2025 and will be specific to wider ESG focuses.

50.2     Officers noted that the Committee considered there to be an emerging challenge on the balance between Fund income and expenditure resulting in a need to explore increasing investments in cash generating assets; a report setting out some options will be brought to the February 2025 meeting if possible, subject to the impact of the pensions review consultation and investment consultant procurement. 

50.3     In regards to the Carbon foot printing information the Committee noted that it is produced as part of the annual report and is now benchmarked to the MSCI all World index. There is some scenario analysis within the Northern Trust report and officers are working through this to better understand the data and results.

50.4     The Committee discussed the analysis provided by ISIO following the questions raised in the debate about divestment at the September 2024 meeting. The independent advisor confirmed that their view was that the strategy agreed previously was correct, but that the timing and pace of the investments could have been better. The Committee agreed that the Fund is appropriately diversified and that different asset classes will perform and underperform.

50.5     The Committee noted that Officers will provide information following the new SAB Counsel Opinion on the legal implications associated with investment in occupied territories.  

50.6     The Committee RESOLVED to note the investment report.