Agenda item

The Committee considered a report of the Tri-Borough Director of Treasury and Pensions, Phil Triggs, regarding the performance of the Pension Fund investments to 31 December 2020, together with an update of the funding position.

The report recommended that the Pension Fund Committee –

(i)    Note the performance of the investments and the funding position; and

(ii)   Approve the updated Investment Strategy Statement (attached to the report at Appendix E).

Matthew Hopson, Strategic Investment Manager, introduced the report, noting that officers wanted to bring to the attention of Members future investment strategies, and that Deloitte had prepared a presentation on investment themes that the Committee may wish to consider. The Chairman then invited the Deloitte representatives present at the meeting to make their presentation.

[The Committee then received a detailed presentation by Kevin Humpherson of Deloitte Total Reward and Benefits Ltd].

In response to a number of questions, Mr Humpherson provided the following information.

(a)  Social and Affordable Housing was an opportunity where the case for investment was strong, as were the social aspects of such investment given the need in this area. He stated that this could be a substitute for some of the Council’s fixed income portfolio and one which provided a link to inflation unlike a fixed income portfolio.

(b)  Regarding Evergreen Funds, there were a range of fund structures available including both closed and open-ended structures. The assets in both structures would be used to buy property assets which need not be new build, as would be the case for supported living purpose-built accommodation. Income from ground rent on property could be from investment in a property that already existed.

(c)   There were a number of drivers that lent support to the investment recommendations including government backing and which afforded protection against inflationary risks, as well as market demand in these areas, giving rise to a strong return; and the societal impact and the inclusion of Environmental, Social and Governance (ESG) considerations which, although not a driving force, was a key element.

(d)  There was a significant difference in the supply and demand dynamics of ground rent and affordable and supported housing to make these subsectors of the property asset classes in their own right. However, investment in property was not the only way of gaining exposure to inflation [a theme which Mr Humpherson then expanded upon].

(e)  The purpose of the presentation was to give an idea of where there might be inflation linked opportunities.

(f)    Investments providing a return by way of ground rent would apply to commercial properties only, not residential properties.

Councillor Harvey stated that, given the wider social and economic benefits of ESG investing, she was in support of the approach presented in the presentation by Deloitte. However, she had significant misgivings about investments giving a return by way of ground rent.

Mr Humpherson confirmed that any investment in property providing income by way of ground rent would be restricted to commercial properties.

In response to a question by Councillor McAllister, Mr Humpherson stated that the way in which to approach investments in affordable and supported housing would be to look at various investment managers who were raising funds to invest in this market, typically pension scheme investors. The ownership and responsibility of sourcing assets would be that of the investment manager. Therefore, it would be necessary to find an appropriate investment manager with the relevant background, knowledge, and experience.

In response to a further question by Councillor McAllister, Mr Humpherson stated that the Retail Price Inflation (RPI) would be aligned with the new CPIH[1] measure of inflation in 2030.[2]

In response to a question by the Chairman, Mr Humpherson stated that a further presentation with more detailed proposals would be submitted to the Committee, including the type of fund managers that may be recommended to the Committee, and addressing some of the issues about complexity that had been raised during the course of the discussion following the presentation.

RESOLVED: that a further presentation on possible investment structures with more detailed proposals and recommendations be presented to a future meeting of the Committee.