Agenda and minutes

To confirm the minutes of the meeting held on 19 September 2023.

The minutes of the meeting held on 19 September 2023 were confirmed and signed.

To disclose any pecuniary, other registrable or personal interest as set out in the adopted Code of Conduct.  In making their decision councillors are asked to state the agenda item, the nature of the interest and any action they propose to take as part of their declaration.

If required, further advice should be sought from the Monitoring Officer in advance of the meeting.

No declarations of disclosable pecuniary interests were made at the meeting.

Representatives of town or parish councils and members of the public who live, work, or represent an organisation within the Dorset Council area are welcome to submit either 1 question or 1 statement for each meeting.  You are welcome to attend the meeting in person or via MS Teams to read out your question and to receive the response.   If you submit a statement for the committee this will be circulated to all members of the committee in advance of the meeting as a supplement to the agenda and appended to the minutes for the formal record but will not be read out at the meeting. The first 8 questions and the first 8 statements received from members of the public or organisations for each meeting will be accepted on a first come first served basis in accordance with the deadline set out below.  Further information read Public Participation - Dorset Council

All submissions must be emailed in full to Joshua.kennedy@dorsetcouncil.gov.uk by 08:00am Friday 24 November 2023.

When submitting your question(s) and/or statement(s) please note that:

·       You can submit 1 question or 1 statement.

·       A question may include a short pre-amble to set the context.

·       It must be a single question and any sub-divided questions will not be permitted.

·       Each question will consist of no more than 450 words, and you will be given up to 3 minutes to present your question.

·       When submitting a question please indicate who the question is for (e.g., the name of the committee or Portfolio Holder). 

·       Include your name, address, and contact details.  Only your name will be published but we may need your other details to contact you about your question or statement in advance of the meeting.

·       Questions and statements received in line with the council’s rules for public participation will be published as a supplement to the agenda. 

·       All questions, statements and responses will be published in full within the minutes of the meeting.   

No questions or statements from members of the public were made at the meeting.

To receive questions submitted by councillors.

Councillors can submit up to two valid questions at each meeting and sub divided questions count towards this total. Questions and statements received will be published as a supplement to the agenda and all questions, statements and responses will be published in full within the minutes of the meeting.

The submissions must be emailed in full to Joshua.kennedy@dorsetcouncil.gov.uk by Friday 24 November 2023.

Dorset Council Constitution – Procedure Rule 13

No questions or statements from Councillors were made at the meeting.

To consider any items of business which the Chairman has had prior notification and considers to be urgent pursuant to section 100B (4) b) of the Local Government Act 1972. The reason for the urgency shall be recorded in the minutes.

No urgent items were raised at the meeting.

To consider the quarterly performance report of Brunel Pension Partnership, the pension fund’s Local Government Pension Scheme (LGPS) investment pooling manager.

The Committee considered the quarterly report of Brunel Pension Partnership (Brunel), the pension fund’s Local Government Pension Scheme (LGPS) investment pooling manager.

Inflation was coming down but not as quickly as markets had previously expected so, whilst interest rates may have peaked, they were not expected to fall any time soon which had a negative impact on growth and quality stocks. The oil price had increased by about 20% over the quarter which meant that energy was the best performing sector.  All Brunel portfolios were underweight this sector because of climate change policies.

Performance in listed markets was driven by a few very large stocks, Alphabet, Apple, Meta, Microsoft, Nvidia and Tesla, with these companies responsible for 85% of global stock market returns this year to date.  A key determinant of the performance of each of Brunel’s listed markets portfolios had therefore become how much the portfolio was over or underweight the benchmark index in these companies.  This trend also meant that passive funds that track ‘market capitalisation’ indices had become very exposed to concentration risk.

It was acknowledged that Brunel had faced a particularly challenging series of headwinds but there were always headwinds for investment managers to navigate.  The Committee were looking for an improvement in performance over the next couple of years and if that improvement did not materialise other options would need to be considered.

Brunel were confident in the ability of their underlying investment managers who were largely invested in high quality companies with good earnings potential and strong balance sheets. These investments were undervalued due to market sentiment not because of the underlying fundamentals of the businesses. More neutral market conditions should be more conducive to outperformance by its managers.

Specific concerns regarding China were also discussed.  Although valuations in China had become more attractive, especially compared to other major emerging markets such as India there were concerns about the relations between China and the USA, and Taiwan.

To receive a verbal update from Cllr John Beesley in his capacity as the Committee’s representative on the Brunel Oversight Board and as a member of the Scheme Advisory Board (SAB) for the Local Government Pension Scheme (LGPS).

Cllr John Beesley, the pension fund’s representative on the Brunel Oversight Board (BOB), and also a member of the LGPS Scheme Advisory Board (SAB), updated the Committee on governance matters relating to investment pooling. 

A key area of focus for both bodies was the government’s consultation on the future of LGPS investments.  The outcome to the consultation was published on the date of the Chancellor of the Exchequer’s Autumn Statement, 22 November 2023.  The potential impacts for the pension fund would be discussed in more detail at future meetings of the Committee.

The key element of the government’s proposals was an ambition to increase the size and reduce the number of LGPS investment pools.  This was suspected to be driven by government concerns that its ambitions for ‘levelling up’ and private equity investment would not be met from the existing pooling arrangements.  Such a consolidation would be hugely disruptive and costly, and it was unclear if this would be the right course of action.

Other key points from the consultation were that the government wanted all listed assets under pool management by March 2025, and that all LGPS funds should have ambitions to invest 5% of their assets in ‘levelling up’ investments and 10% in private equity investments.  Greater collaboration between pools was encouraged but competition between pools was discouraged.  Objective setting for advisors and training for pension fund committee members would become more formalised.

Brunel’s quarterly reporting had improved but Committee members should let Cllr Beesley know if they wished to see further modifications.  It was agreed that training to better understand the Brunel reporting would also be beneficial. More generally officers would be reviewing the structure and volume of reports received by the Committee to better highlight key matters. 

Social and affordable housing as an asset class available for investment through Brunel would need to be discussed within the partnership.  Currently access to this asset class was only available outside the pool which was inconsistent with the government’s ambitions for investment pooling.

To consider the quarterly report of the pension fund’s independent investment adviser on the outlook for the pension fund’s investments.

The Committee considered a report from Steve Tyson, Apex Group, the pension fund’s Independent Investment Adviser, that gave views on the economic and market background to the pension fund’s investments, the outlook for different asset classes and key market risks.

It had been a negative quarter for most stock markets except the UK.  Inflation had begun to fall and interest rates had stabilised, but it wasn’t clear when they might fall and how quickly. Recession might be avoided but there could be a period of ‘stop-start’ economic activity similar to that experienced in the 1990s.

Private markets had seen falls in valuations that lagged what had happened previously in public markets.  Also, many corporate pension schemes were now looking to sell their private market investments as they were now close to their ‘buy out’ funding position.

The benchmarks for Brunel’s portfolios were agreed with clients at the inception of each portfolio and reviewed at least every three years.  The pension fund’s combined benchmark is the average of all individual benchmarks weighted by the strategic asset allocation.  The pension fund’s combined investment returns should also aim to match or exceed the discount rate used by the actuary to assess the funding position. 

The next stage of the equity ‘deep dive’ would need to look in more detail at Emerging Markets, including a better understanding of the pension fund’s exposure to China.

To consider the quarterly report on the funding position, the value and performance of investments and other related issues.

The Committee considered a report from officers on the pension fund’s funding position, asset valuation, investment performance and asset allocation as at 30 September 2023.

The value of the pension fund’s assets at 30 September 2023 was £3.5 billion which was broadly unchanged from the start of the financial year.  Just over three quarters of assets by value were now under the management of Brunel.

Contributions to the pension fund from scheme members and their employers were currently broadly equal to the benefits paid out each month.  As the pension fund matures, cashflow will become a more important factor when setting and implementing the investment strategy.

The pension fund’s Investment Strategy Statement (ISS) had been updated to

reflect the changes to strategic asset allocations agreed at the June 2023 meeting. It was discussed whether the ISS should include an explicit Net Zero emissions target of 2050 to align with Brunel’s climate change policy and Dorset Council and BCP Council’s targets for their respective local areas.  Committee members were generally supportive of this but wanted to avoid unintended consequences for future investment performance and therefore for scheme employers. A better understanding of how progress against a target could be measured was also needed.

Decision

That:

·       The revised Investment Strategy Statement (ISS) be published on the pension fund’s website.

·       A statement on the pension fund’s position regarding a Net Zero emissions target be drafted for further consideration by the Committee.

To consider the Pension Fund Annual Report 2022/23.

LGPS regulations require all administering authorities to publish an annual report on the activities of its pension fund.  The report of the independent auditor regarding the financial statements for 2022/23 had not been received but it would be circulated to members of the Committee when received.  The final audit reports and opinions for 2020/21 and 2021/22 were still outstanding also.

Decision

That the annual report is published on the pension fund’s website in draft unaudited format.

To consider the quarterly report on pension fund administration.

Performance against Key Performance Indicators (KPIs) continued to be generally good, especially given the very high volume of work and significant changes that are going on particularly around the McCloud remedy and system updates. 

Recruitment and retention had stabilised, and the administration team were in a good position to deal with the additional work associated with the McCloud remedy.  The software solution for the calculations needed for the McCloud remedy was not yet available but was expected late 2023 / early 2024. 

All active members plus pensioner and deferred members who are in scope for the McCloud remedy will receive written notice before 31 December 2023.  This would make clear that scheme members will not need to take any action themselves.  Approximately 21,000 scheme members could be in scope for an adjustment to their benefits, but the value of any such adjustments would be relatively very low.

The Pensions Regulator has also recognised the challenges faced by pension schemes to reflect the adjustments for the McCloud remedy in scheme members’ Annual Benefit Illustrations.

It is expected that pensions will be uprated in April 2024 by the Consumer Prices Index (CPI) rate of inflation for September 2023 of 6.7% but this is still subject to government confirmation.

The Pension Administration service is a finalist for team of the year in Dorset Council’s annual employee awards.

To confirm the dates for the meetings of the Committee in 2023/24:

26 March 2024

1.30pm Tuesday 5 March 2024 - County Hall, Dorchester.

10am Tuesday 26 March 2024 - Teams (to be confirmed)

To move the exclusion of the press and the public for the following item in view of the likely disclosure of exempt information within the meaning of paragraph 3 of schedule 12 A to the Local Government Act 1972 (as amended).

The public and the press will be asked to leave the meeting whilst the item of business is considered.

Decision

That the press and the public be excluded for the following item(s) in view of the likely disclosure of exempt information within the meaning of paragraph 3 of schedule 12 A to the Local Government Act 1972 (as amended).

To receive an update on any changes to investment management arrangements. 

The Committee considered a proposal to make some changes to existing investment management arrangements.

Decision

That the recommended changes to investment management arrangements be implemented.