Agenda and minutes

The Chair welcomed everyone to the meeting. Apologies for absence were received from Carolan Dobson (Independent Adviser).

Members of the committee are invited to identify any disclosable pecuniary, other pecuniary or non-pecuniary interests relevant to the items on the agenda.

Cllr Oykener declared that his sister was a beneficiary of the Enfield pension fund.

To approve the minutes of the previous meetings held on  2 October 2024 and 12 November 2024.

AGREED the minutes of the Pension Policy & Investment Committee meetings held on Wednesday 2 October 2024 and Tuesday 12 November 2024.

To receive a verbal update from the Chair.

The Chair updated the committee on the consultation response submitted by Enfield on the future of the Local Government Pension Scheme. Cost savings in investment manager fees and growth in the UK were said to be the primary reason for this reorganisation and the governments desire to increase investment in the UK. The fiduciary duty to achieve the best return for the pension fund and the governance in dealing with a potential conflict if the CIV were advising on strategy and choosing investment funds were emphasised. The ability to source independent advice outside of the pool and a need for a mechanism for buy throughs of non-CIV pools was also highlighted. Ravi added that input into responsible investment policy was desired and through informal conversations with the CIV, they saw the way advice would be given would be that boroughs would have input into that advice at a level below the high-level strategic asset allocation. The Chair conveyed that the mandating of transfer of assets to the CIV would make responsible investment more complicated, as there was no steer as to how potentially 32 different competing views would be managed. Members expressed their support of the general theory and response, but had concerns about mandating investment in the CIV, managing the different views of boroughs, the long-term management of the CIV and lack of choice/ flexibility if it were to go its own way or have seriously underperforming investments. The Chair described the governance and structure of the CIV or CIV+ as being key in addressing these concerns, including representation on its boards and regulation, and that this was something that would be resolved post consultation as part of discussions and with the FCA.

The Chair detailed that they’d gone back to the company the CIV had selected as its nature-based solutions provider, with responses to the questions posed having been received and were now being considered, with any decision to come back to the committee in due course. Ravi added that the committee previously had concerns about the structure of the fund and how Enfield would get money out if it wished to do so; Aon and Carolan provided some feedback and questions had been sent to London CIV, who had sent responses back, but there were further questions coming out of this, which they sent for answers on, before bringing it back to committee.

The Chair informed the committee he’d been to the Local Authority Pension Fund Forum Conference at which there was a section on the government consultation, a report from a water company CEO and a contribution from John Kay including the nature of corporations and ownership. There was a contribution from the local MP in Bournemouth regarding conflict zones and a presentation from the Chief Executive of BP on their strategy for transitioning to renewables.

The Chair will provide a verbal update on the Responsible Investing Policy.

Ravi advised that on 12 November a training session had been run by Pensions for Purpose on responsible investment policy, which was well attended by PPIC members, who identified the UN sustainable development goals of particular importance to them. The favoured goals were: 3, 7, 8, 9, 12, 13, 15 and 16, which highlighted the committees’ priorities.

Discussion moved to alignment with the London CIV responsible investment policy, with it being imperative to identify synergy given the scale of the London CIV; this was vital for presenting a unified approach and maintaining integrity and efficiency of responsible investment. It was agreed at the workshop that external advice would be commissioned on fiduciary duty on responsible investments, which Aon consultants provided a paper for. Advice had only been received from the KC in the last few days, so the legal advice needed to be digested in conjunction with the note from Aon to make sure the implications were understood before bringing the responsible investment policy back to committee to agree. The Chair added that the advice came from a KC called Nigel Griffin and was published on the Scheme Advisory Board website on 13 January. It provided direction on making policy on non-financial issues in line with fiduciary duty, but it needed time to be considered. Analysis would be provided as to what this advice meant and would be brought back to the committee at the next meeting, the paper being as open to the public as possible. Going forward the conflict between the council’s responsible investment policy and that of the CIV may be an acute faultline they’d have to try and avoid, either through everything being aligned, which would be difficult, or having a mechanism where it was possible to take consideration of everyone’s view. Members highlighted the difficulty in aligning priorities and that these goals may have different meanings to different people. The Chair conveyed that the policy/ investment strategy should be reviewed every 3 years and make clear issues around non-financial decisions, so it was important to get this right as it would set the framework moving forwards.

To note the contents of the Risk Register.

Ravi explained that one of the functions of PPIC was effective management of the pension fund, which covered its associated risks and how they’re managed. The risk register covered investment but not administration aspects of the fund, which were dealt with by the Local Pension Board. The scores given to different risks were all out of 5 and subjective, so officers welcomed feedback on these judgements. The first risk highlighted was market volatility, which was mitigated by diversifying investments across different asset portfolio classes. The strategic asset allocation would be reviewed at the next PPIC meeting or the one after that.

Exchange rates was the next risk discussed; whilst the fund didn’t currently have an active hedge manager, they expected any investment managers they employed to integrate this into their processes. Members felt following the US election and the Trump administration’s talk of tariffs that this rating should be upgraded from a 3 to a 5, and queried if it was thought this change in policy would be advantageous to them. Ravi and Colin agreed with the proposed change to the rating, emphasised market uncertainty/ volatility and felt the tariffs may be beneficial in some instances, given the funds’ investments in the US.

The next risk was non-compliance with ESG factors by investees, which may also need its rating altered given recent changes, including Blackrock withdrawing from UN Financial Climate Net Zero. The Chair highlighted that there was a potential investment in Blackrock coming up and asked if this affected that fund. Colin responded that these carbon reduction target funds were still being offered, but Blackrock weren’t at a corporate level having their own net zero targets.

Ravi touched on some other pertinent areas of risk, namely: the impact of climate change on expected liabilities; concentration of passive investments, market share in the Magnificent 7 and active managers; and pooling with the London CIV, ensuring objectives align and having input in the investment strategy.

To agree changes to the Fund as outlined in the recommendation section of the report.

This item should be read in conjunction with item 12.

Ravi outlined the purpose/reasons for the recommended actions and the current asset allocation values were detailed, as set out in the report.

Members queried why there was a rush to pool these assets. Colin replied that this requirement for listed assets had been known for a year. The new requirement in the consultation was around illiquid assets by March next year, which was felt to be more of a rush and there was a lot of pushback. The Chair added that all listed assets would be managed by the CIV and expressed that he would like to have a presentation at a future PPIC meeting from a fund manager called Store Brand, who another London Borough was very positive about, just to listen to what they’re about.

Members enquired whether listed assets being transferred to the CIV meant/ included both equities and bonds, to which Colin responded that in an ideal world it would be both; if the proposed changes went through, all the equities and the majority of bonds would be in the CIV. He clarified that Blackrock Passive Assets counted as being in the CIV. The one that wasn’t was the Aon fund which would be a comply and explain, as it was intended to be moved to the CIV as infrastructure. The two assets recommended to be redeemed would also otherwise have to be comply or explain, but there were other reasons why they were looking to pool these too.

Members asked if there would be costs attached to transferring assets to the CIV, to which Colin confirmed there would be some small frictional costs which had been considered but were now considered sensible to incur given other factors.

The Chair explained, with regards to the second recommendation, that in an ideal world with more time, they might not invest in Blackrock, to consider the portfolio in more detail, but given the nature of pooling requirements moving forwards, things may be uncertain in the short term and this was a sensible proposition, which further down the road they could consider again. Ravi added that Blackrock had high daily liquidity so the committee could decide to exit the fund in the future without penalty. He confirmed that the Blackrock Low Carbon Equity Investment was a passive fund. 

In response to Members questions regarding developments in the investigation into Western, Ravi advised that it was still ongoing and should be given serious concern, particularly given the company’s internal control mechanisms and governance processes did not pick this up at an earlier stage. Significant disruption to Western’s strategies were expected moving forward. Previously, prior to the investigation, there had been a recommendation to the committee to redeem this investment, but the committee decided against this due to the costs involved which at the time were £200,000 to £300,000. This was a worst-case scenario and officers would work with partners to try and minimise this loss. The Chair described this as a significant financial loss to the fund, that they would  ...  view the full minutes text for item 7.

To note the contents of this report.

This item should be read in conjunction with item 13.

Ravi summarised the fund’s performance and emphasised that this report was produced for Q3 2024, so some of the information was a little out of date, especially as it related to the US election.

In response to members queries regarding the performance of equities and bonds, Colin explained that in the last few years equity returns had been predominately driven by the Magnificent 7, so active management hadn’t performed as well as passive. The new US administration were taking a pro American business approach that could see returns being more spread out to other stocks, where active management would add value.

Members expressed a need to consider active vs passive management moving forwards. Ravi conveyed that Enfield and other London Boroughs had challenged London CIV on the underperformance of active fund managers and London CIV were presenting the relevant performance metrics for these managers and their process for challenging them and some of these managers were being reviewed. Sometimes active managers could underperform but still follow the methodology; its where they deviated from policy to chase market returns that needed to be picked up on. Once the consolidation issues settled down in the summer, these managers could be brought in so that PPIC can challenge underperformance. Colin added that they were at the point in the cycle when they should be looking at strategy in detail and the active vs passive debate would usually come 6 to 12 months after valuation. Members felt it may be out of their hands and down to the CIV by that point anyway. Colin added that it had been a tough period for active managers, and whilst it was important to challenge this approach, the absolute returns of these funds had been good and the asset allocation strategy had delivered. The Chair thought they ought to have a session just on the debate between passive and active management.

Members enquired whether there was a risk of diversifying too much. Colin confirmed there was, but that equally there was a risk of following the bubble and it bursting. These needed to be balanced, which the active vs passive split was designed to do and it would be for members to review this. Ravi conveyed that the fund may be overly diversified and a sensible time to look at the active vs passive debate would be when they do the annual strategic asset allocation review.

Colin provided an economic outlook in which he discussed Covid and the war in Ukraine as leading to increases in inflation and interest rates, with concern as to whether this could be done without causing a recession, which around September/ October it was believed it had. Following the US election, markets were initially happy as there had been a clear outcome, but the Trump administration’s America first approach such as tariffs, and announcements in Labour’s budget in the UK have been considered inflationary pressures. As such markets have started to worry about the return of inflation, leading to central banks pausing  ...  view the full minutes text for item 8.

To receive a verbal update.

Ravi advised that the predominant agenda item had been discussing the consultation, which was quite fresh at that point in time, along with other papers that have already been brought to PPIC.

To note the next meeting of the Pension Policy and Investment Committee is scheduled to take place at 9:30am on Wednesday 26 March 2025.

Members noted that the next meeting would be 26 March.

Ravi highlighted that the AGM would be on 11 March at 10am in the Conference Room and encouraged as many members to attend as possible.

To consider passing a resolution under Section 100(A) of the Local Government Act 1972 excluding the press and public from the meeting for the items of business listed on part 2 of the agenda on the grounds that they involve the likely disclosure of exempt information as defined in those paragraphs of Part 1 of Schedule 12A to the Act (as amended by the Local Government (Access to Information) (Variation) Order 2006). (Members are asked to refer to the part 2 agenda.)

AGENDA – PART 2

The Chair conveyed that members had received and read the part 2 papers, and there was no need to move into part 2 to discuss these items.

The Chair thanked everyone for their time and contributions, and the meeting ended at 11:23.