Agenda item

To consider and note the information.

The Investment Manager submitted a report, providing a formal update to members on the developments of the Wales Pension Partnership (WPP). She reported that the Head of Finance and the Investment Manager represented the Fund in all the pool's meetings, and that the collaboration continued to go from strength to strength on matters such as freedom of information requests, voting and engagement and generally sharing good practice across the funds. It was noted that 83% of Gwynedd's Fund had now been pooled with the WPP – Gwynedd was amongst the highest in the fund.

The Manager drew attention to the equity funds and referred to the performance of the Global Growth Fund, which had three underlying managers operating a very different style to each other – Baillie Gifford, Pzena and Veritas. The Members were reminded that this fund, in the early years, had performed very well, and this was mainly due to the performance of Baillie Gifford. However, Baillie Gifford was now underperforming, mainly due to the nature of their investments and their performance being 'cyclical' (sometimes good, and other times not so good). It was added that the performance was being monitored closely and that discussions were being held with the Partnership and the Partnership's advisors, Hymans Robertson.

In the context of the Global Opportunities Fund, it was reported that the fund included eight underlying managers and, although not all managers would perform well at the same time, the varied approach would lead to a stable position and the fund performing ahead of the benchmark over the long term, but the last three months had been challenging.

In the context of Fixed Income Funds, reference was made to the Multi-asset Credit Fund, which had five different investment managers. It was reported that the fund had underperformed, which had been driven in a large part by instability in the market with the war in Ukraine, Covid restrictions in China and the impact of rapid interest increases. Despite concerns that the fund had gone through a challenging period, it was added that this was a long-term investment commitment and, therefore, the aim was to continue with the investments in the hope of experiencing progress at the end of the instability.

When discussing the Absolute Returns Bond Fund, which had four investment managers, it was highlighted that conditions in this field had also been challenging with the impact of inflation and interest rates, but again, it was a long-term commitment and therefore there was a willingness to continue with the investments in the hope that the conditions would improve.

It was reported that the Emerging Markets Fund, launched in October 2021, had six underlying investment managers including Bin Yuan, a China specialist. It was noted that conditions were again very challenging, and that Bin Yuan had caused the element of underperformance due to China’s ‘zero Covid’ policy. It was reiterated that the hope was to see an improvement in market conditions, and improved returns.

Reference was made to the recent developments of the WPP, highlighting the work being undertaken within private markets. Companies had been appointed to run the private debt, infrastructure and private equity mandates. It was added that private debt and private equity investments had already commenced, and that officers were in the process of signing the private equity fund documents. The aim was for the Gwynedd Fund to let the infrastructure and private equity investments mature naturally and to then invest gradually with the pool. It was noted that initial discussions had also commenced in relation to the property assets class, and that the procurement process would take place within the next year.

In the context of the Sustainable Equity Fund, which was a fund created by Russell Investments after assessing the pool's responsible investment needs, it was highlighted that £270 million, namely 10% of the Fund had been invested in this fund, and that the performance would be monitored regularly.

Reference was made to the pool's Annual Return, and to the WPP's website where a number of useful documents were available. Officers also highlighted the significant fees that were paid to run the pool, and it was explained that these fees were split equally with the other partnership funds (unless specific work had been made for one fund) – the fees included important costs such as consultant fees, solicitors, translation work and voting and engagement provider work.

In terms of an update on the operator, it was reported that Link had been acquired by Waystone on 9 October – this would not affect how the funds were being run. It was added that the current contract would end in 2024 and one of the first tasks would be to undertake a procurement process for a new operator. An Invitation to Tender would be issued in October 2023.

Members gave thanks for the report.

The Chair of the Pensions Partnership added that he was happy with the Fund's performance and with the WPP's performance in comparison with other funds in the UK. He added that investment in infrastructure was likely to happen when the best opportunity presented itself, but in the meantime, they did not anticipate any problems on the horizon, and the performance was good. He noted that the Partnership's work was making good progress, and he thanked the officers for their work and good cooperation.

RESOLVED to accept and note the information