Meeting documents

To consider the quarterly report of the Fund Administrator (attached).  This includes asset allocation, cash flow and performance analysis for the period ending 31 December 2016 and other topical issues; the report from the independent Adviser on investment outlook; a report from Mercer on the high level strategic asset allocation review commissioned in light of the latest actuarial fund valuation; and the Investment Strategy Statement that has to be published by 31 March 2017, replacing previous requirement for the Statement of Investment Principles.

The Committee considered a report by the Pension Fund Administrator on the allocation of assets and overall performance of the Fund up to 31 December 2016.

The Independent Adviser presented his report at Appendix 1 and provided a commentary on the investment outlook, and how it was likely to affect each asset class.  His expectation was that momentum in equities would continue although likely to hit headwinds in the second half of 2017, with single digit returns expected for the calendar year, it was unlikely to see further significant movement in sterling, returns from bonds would be lower than equities (possibly even negative returns), and 2-3% returns from property for 2017 and 2018, with some erosion of capital values likely.

The Independent Adviser felt that although there was now some clarity of intention on Brexit from the government, there was still a high level of uncertainty about the outcome of the process.  He highlighted two significant risks from China to world economic growth - the very large debt burden (higher than in any other major economy) and the continued imbalance between investment and consumer spending.

A member questioned the comment in the Independent Adviser’s report that the UK government had decided to leave the single European market, as he believed the government had simply set out an initial negotiating position.  The Independent Adviser commented that his report reflected the general interpretation by markets of the government’s statements.

A member asked about the results of a recent survey of investor optimism that was very positive.  The Independent Adviser felt this reflected the short term positives markets perceived, particularly as a result of expectations of changes in the US and largely already factored into asset prices, such as deregulation, increased government spending and lower taxation, but possibly underplayed the long term potential negatives, such as greater protectionism.

The Fund Administrator highlighted the very strong absolute performance of the Fund’s assets over the financial year to 31 December 2016, primarily as a result of the impact of sterling’s depreciation on equity prices and the increase in the value of inflation hedging instruments.  Members were reminded that the value of the Fund’s liabilities would also have increased over this same period because of the same higher inflationary expectations.

The Independent Adviser presented the interim report from Mercer, Investment Consultant, who had been engaged to review the Fund’s strategic allocation to asset classes following the results of the 2016 actuarial valuation.  The Chairman confirmed that the final report would be discussed and any changes to asset allocation agreed at the next meeting of the Committee on 21 June 2017.  He added that any changes would need to take into consideration the Brunel Pension Partnership (BPP) and transition costs.

Resolved

1.  That the activity and overall performance of the Fund be noted.

2.  That no changes to asset allocation be made at this time.

3.  That the results of the review of the strategic allocation be agreed at the next meeting of the Committee on 21 June 2017.

4.  That the Investment Strategy Statement (ISS) March 2017 be approved.