To review the position and activities of the Fund to the Quarter ending 31 December 2020, including the overall funding level, investment and administration performance.
The Head of Pensions presented an overview of market valuations and an update on the performance of the Fund, as at 31 December 2020.
Members noted that by the end of the quarter the market value had increased by £193.4m, to £2.842bn, which is back above pre-Covid levels. It was reported that performance for the fund for the quarter was 7.2%, and the benchmark was 6.4%, therefore the fund had outperformed the benchmark by 0.8% . It was noted that Appendix 1 provided the full performance figures. The Fund returned 7.8% for the year which was ahead of its benchmark and over three years returned 5.9% annualised, which was slightly below the benchmark but was still in excess of the desired return.
Appendix 2 on page 17 detailed the strategic asset allocation of the Fund as at the end of December 2020. The Committee approved the new strategic asset allocation at its January 2021 meeting, however this changes were not reflected in this analysis. Members were advised that a more detailed update regarding the transition to the new strategic asset allocation would be provided under Agenda Item 14.
The report showed the position of the allocations of the underlying portfolios, it was explained that amber signified those actual strategic asset allocation which were outside of its target range. It was noted that Global High Alpha was currently c6% over its allocation. It was noted during the quarter, the following investment activity had taken place:
- £14m investment into the Brunel UK Property Portfolio
- £50m investment into the Brunel International Property Portfolio.
Members were advised that Hermes EOS were appointed by the Brunel Partnership, to engage and apply the partnerships voting and engagement strategy.
Page 7 to 10 of the report gave an overview of the voting statistics and the engagement that Hermes EOS actually undertook with companies on the Funds behalf. It was noted that they had engaged with 368 companies in the quarter, over a range of issues, including ESG related matters.
Members questioned the term engagement, officers explained that it related to direct communication with members of the board and the senior management team, in addition discussions were followed up with correspondence. In essence it was activity outside of the Annual General Meeting (AGM) and would be a meeting with an agenda including areas of concern.
In terms of voting, officers explained that the majority of votes against or abstaining referred to resolutions like board structure and executive remuneration, etc. Members felt this area of the report required more context as to what the opposed resolutions actually related too.
The Independent Advisor suggested that quite often voting against a resolution related to a combined Chairman and Chief Executive Officer (CEO) role, reappointment of independent directors, remuneration, or a share option scheme would be good examples. The Independent Advisor cited the circumstances of the resignation of the Chair/Chief Executive of Rio Tinto, as an example.
Members felt it was necessary for the shareholders to have engagement and have qualitative discussion about the issues. The Committee agreed that Officers should feedback to Brunel and request more substance around the voting numbers. (MT to pursue with Brunel)
The Committee were advised that the Fund was in a positive position at 106.9% funded at the quarter end.
Julie West, Hymans Actuary gave a detailed explanation of the funding position calculation. Members were informed that the funding position had improved since the formal valuation, liabilities had grown as the Actuary would expect with the accrual of new benefits. However, assets had grown by a greater amount in the return over the period since the last formal valuation. The Actuary reminded the Committee that it was worth noting that this was very much a snapshot in time and in effect a backward looking position.
The Actuary advised Members that it was a bit early to say how things might look in a years time, when the next formal valuation is due.
The Head of Pensions referred Members to page 12 of the report, which gave an update on the administration performance. It was recognised that the Covid pandemic had impacted on working practices, however the Pensions Administration Team were still performing well. In terms of the targets there was a slight reduction in some of the activities in terms of the number of estimates and number of leavers but this was an effect of the pandemic situation. The Head of Pensions anticipated numbers would increase when organisations return to normality over the next twelve months.
The Committee were notified that the 95k Cap regulations had been revoked by Government. It was noted that the Government still intended to apply a cap on exit payments and it was anticipated that new regulations would come forward in the summer of 2021.
In response to a question relating to the funding chart on page 21 of the report, it was explained that the funding levels for March 19 to December 20, reflected the volatility of the funding level, on a rolled forward basis since the last formal valuation.
Members required clarity on the cash flow chart, the actuary confirmed that it referred to projected cash flows of the benefits that the Fund is expected to pay and is in effect the liabilities that the actuary reported on. The Actuary confirmed for the benefit of the Committee that the fund was also cashflow positive at this time..
Members welcome the new report layout and thanked the Head of Pensions for making the report more accessible to all. In response to a question, it was explained that reporting would continue to be developed and would be covered in the Business Plan going forward.
That the Committee noted the market value and quarterly performance of the Gloucestershire Pension Fund as at 31 December 2020