Agenda item

To consider the report 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). It was reported that the Head of Finance and the Investment Manager represented the Fund in all partnership 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.

Attention was drawn to the two equity funds that had been active for over five years by now and therefore it was a reasonable period to assess their performance.  Reference was made 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. It was pointed out to members that this fund, since its inception had fallen behind the benchmark and the Partnership was therefore looking at options to re-develop this fund.

⁠In the context of the Global Opportunity Fund, it was reported that the fund was managed using a combined approach with eight different managers. ⁠Although all managers would not perform well at the same time, the diversified approach meant a stable position and the fund performed higher than the benchmark over the long-term.

Reference was made to the performance of the Sustainable Equity Fund that was recently established with Gwynedd investing £270 million in it; with a clear focus on climate and Net Zero targets.  It was highlighted that the performance was lower than the benchmark since the start and this was because of the energy sector stock underweight which had performed well, apart from the last quarter.  It was noted that it was early days for this fund and the performance would be monitored in detail.

In the context of Fixed Income Funds, reference was made to the Multi Asset Credit Fund, Absolute Returns Bond Fund and Global Credit, it was reported that historically these had been under-performing and this was because of the instability in the market with the war in Ukraine, Covid restrictions in China and the impact of rapid interest and inflation increases. It was added, despite the concerns, that conditions had started to improve and there was progress to be seen in performance in the last three months. With this being a long-term commitment, there was a willingness to continue with the investments in the hope that the conditions would continue to 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 the conditions again were very challenging in several countries and sectors, however it was hoped that there would be 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 and to start investing in these funds.  It was noted that the Gwynedd Fund allowed infrastructure and private equity investments mature naturally and would then invest gradually with the pool. It was reiterated that the procurement process for the Property Manager was developing well with an invitation to tender released in January and the proposals were now being evaluated - the result would be made evident over the summer.  The appointment of the Property Manager would offer wider property options for the Fund such as global property and impact.

Reference was made to an update regarding the appointment of an Operator as the existing contract would end in December 2024. It was reported that the open tender process had taken place together with the evaluation process with a report recommending the preferred candidate and this had been approved by the Joint Governance Committee and the eight constituent authorities - once legal matters had been completed, the details of the successful company would be officially announced in the next few weeks. 

Attention was drawn to the development in the field of 'voting and engagement' and to the good work that Robeco does in this field with quarterly updates presented to the Committee and the Joint Committee. However, it was pointed out that a situation had been highlighted, when poor engagement takes place, that it was difficult to respond and act on the situation. As a result, it was noted that WPP was drafting an escalation policy to get to grips with this which was seen as an important step forward.

The members expressed their thanks for the report.

Observations arising from the ensuing discussion:

·        It was considered that overall performance was good and the percentage of 83%, that had already been invested with the Partnership, was very high compared to others. 

·        In the future, including the percentage and investment sums in each fund would be beneficial.

In response to the update on the appointment of the new Operator, the need was noted for the Gwynedd Pension fund, as one of the eight Constituent Authorities to be ready to support the new contract.  The Investment Manager added that a great deal would depend on the operator's method of implementing and responding to changes and several matters needed to be sorted. It was noted that the period will be seen as a new period with a willingness to collaborate with the proposal to see a part-time post being created to support the Partnership's work.

In response to the establishment of an escalation policy that addresses poor engagement, the need for an approach to dealing with the contentious concerns / issues particularly if the Provider's decisions affected the reputation of the Partnership was supported. It was noted that this would again create additional work for officers and a request had been made to secure support. ⁠

In response to a comment that the returns and performance were good but the performance against the benchmark was not as good as expected, it was noted that, e.g., in the equity funds, work was being done to look at alternatives and in the fixed funds that recent conditions had been challenging, but that management was regularly monitoring the situation and the decision had been made to persevere. In response to a supplementary question that the challenging situation / factors / circumstances affect everyone, the Chair of the Pensions Committee noted that investment managers had different styles of working, variety in stock to consider and a diverse portfolio set-up – these were elements that could create impact. He reiterated that, with these long-term investments, he remained confident and that improvement was likely.  ⁠ ⁠

RESOLVED to accept the report and note the information.