Agenda item

To consider the quarterly report of the Fund Administrator.  This includes an update on the funding position, the value and performance of investments and other topical issues.

The Committee considered a report from officers on the pension fund’s funding position, valuation, performance and asset allocation as at 30 September 2020.

The value of the pension fund’s investments had recovered to just over £3.0 billion at 30 September 2020.  Assets were estimated to be 83% of the value needed to pay expected benefits accrued to 30 September 2020 compared to the funding level of 92% calculated by the actuary following their full assessment as at 31 March 2019.

Performance had been volatile with approximately 13% return over the first half of this financial year compared to -3% over the last 12 months.  Both legacy and Brunel active equity managers had performed well with outperformance driven by growth stocks, particularly technology stocks. 

In recent years the pension fund had underperformed its combined benchmark in part because of the challenging market conditions for those investment managers with ‘cash plus’ benchmarks.  There would be a review of the suitability of all benchmarks used.

As at 30 September 2020 just under 50% of assets had transferred to Brunel’s management.  Implementation of the changes to the investment strategy agreed by the Committee in September 2020 were expected to increase this proportion significantly before the end of the financial year.  Implementation of the changes to equities allocations had begun and should be completed before the next meeting in March 2021.

The focus to date with the investment pooling project had been the transition of investments to Brunel’s management.  Now that the transitions were nearly complete, the focus would shift to assurance that expected outcomes were being delivered by Brunel.  Reports needed to be better structured with a succinct summary of key points supported by the inclusion of more information regarding the performance of underlying managers.

David Vickers has been appointed as Brunel’s Chief Investment Officer and would be invited to a future meeting of the Committee.  The Brunel governance review was nearing its final stages.  The slides from the recent Brunel investor days would be distributed shortly.  The sessions worked well and would be worth continuing with when restrictions on face-to-fact contacts are lifted.

The approach to environmental, social and governance (ESG) matters remained a priority, with Brunel recognised as a leader in this field, although investment performance remained key.  The investment in a low carbon farming business through Brunel’s secured income portfolio was a good example of good returns with positive environmental impacts.  ESG benefits through investment pooling were much greater than could have been achieved acting as an individual pension fund.

The balance between divestment from fossil fuels but supporting those energy companies who are investing heavily in renewables was discussed.  In September the Committee resolved to take a broader low carbon approach rather than a blanket divestment from fossil fuels so some investment in oil companies would be retained.  Further details about Brunel’s the investments in hydrogen were also requested.

The government’s rationale for investment pooling had been that investment manager fees savings from economies of scale would more than offset set-up, transition and ongoing management costs.  A detailed review of progress against the original expected outcomes was required and should be added to the Committee’s forward plan.

Resolved

                 i.            That officers and the Independent Adviser review the benchmarks for all investments.

               ii.            That details of underlying investments in hydrogen be requested from Brunel.

              iii.            That a detailed review of progress against the original expected outcomes of the investment pooling project be added to the forward plan.