Agenda item

To consider the report and note the information

A report was submitted by the Investment Manager, explaining the performance of the Pension Fund's investments for the 2023/24 financial year. It was reported that the investment managers were being monitored every quarter by the Investment Panel with the advisers giving a presentation on the performance to the Members and invitations were sent to investment managers to attend in turn to explain the performance further.

It was highlighted that the value of the fund on 31 March (over the last 10 years) had increased to £3.1 billion, which followed a pattern of a gradual increase over time. It was noted that the fund's performance had been strong, with returns of 11.2% over the year, and although this was lower than the benchmark, it was higher than the average for the British Local Government Pension Fund average, at 9.2%.  It was reiterated that the benchmark set was challenging, as well as market conditions, particularly within active equities.

When discussing the performance of Equity Investment Managers, reference was made to two BlackRock funds which had performed well over the quarter and the year and in line with the benchmark. It was noted that the active managers, who were trying to exceed the benchmark, had underperformed since there were underweights for the US and exposure to value-type equities disrupted the general returns of the Fund.  It was reiterated that the funds' performance could be cyclical, and therefore it was reasonable and expected for under-performance to occur; however, the Global Growth Fund, which included the Baillie Gifford, Pzena and Veritas investment managers, had now been under-performing for some time and WPP were looking at the structure of this fund to see what could change.

When discussing the performance of Fixed Income Managers, it was explained that these funds had experienced challenging periods with market instability due to the Russia and Ukraine War, and a time when there was high inflation and interest rates. Nevertheless, it was reported that this market had now stabilised and the funds had been performing close to the benchmark over the year.

When discussing Property Managers, it was highlighted that the performance of the sector was generally poor and behind that benchmark due to challenges in the property markets where it was seen that these funds had invested, e.g. in offices and in the high street. It was explained that there would be considerable changes to the property portfolio over the next years, with the Lothbury Property Fund ending and the money to be returned. It was noted that this would mean that the WPP property funds would have potential options to invest Lothbury money in three different funds - UK property, International property and Impact property. It was reiterated that discussions were being held on the best method of reinvesting this money.

In the context of Partners Group (which was responsible for managing private equity investments and the Fund's infrastructure), it was noted that it was difficult to measure their performance in a specific time because of the time lag, and therefore, the actual performance was not being measured until the fund would be closed down. Despite that, it was reiterated that the Partners had been performing well and that Hymans had not caused concern regarding their figures. It was reiterated, as a part of the WPP, that an investment had been made in a number of different funds in this field, therefore, there would be more funds to report upon next year.

It was noted that the Fund's performance had been regularly assessed, even though long-term investment was the objective. It was highlighted that the Fund's performance over the last year had been lower than the benchmark due to the performance of some of the equity funds, fixed income and property, and although the performance was 3 years behind the benchmark, the Fund was placed 18th out of approximately 100 of all British funds, which showed that the benchmark set was challenging.

Reference was also made to the clarity regarding the allocation of strategic assets where it was reported that the Gwynedd Fund had set a strategy to reduce risk to the fund, i.e. reduce the levels of equity and investment in infrastructure and private credit. It was reiterated that the work would take place over the next 12-18 months.

Members gave thanks for the report - the report was good and reflected a satisfactory situation. 

In response to a question about the meaning of Impact Property, it was noted that this referred to property that would make a difference, such as Social Housing or local investments. It was reiterated that Gwynedd wished to invest more in this type of property, but a little more information was needed before making a firm commitment.

In response to a question regarding whether there was any type of suggestion of the value of the long-term investments of Partners Group, it was noted that Hymans was submitting quarterly reports on Partners' performance and that the performance was very good and the returns were acceptable. Nevertheless, there was no intention to reinvest in Partners Group as they were not a part of the WPP investments.

Tony Deakin noted that he had recently attended the Local Government Pension Scheme (LGPS) Strategic Investment Forum with many discussion topics relating to global equity (potential risk impact on the market following the result of the US presidential election, introduction of new technology in the health care industry, investment in carbon investments as well as the suggestion that there was going to be a likely increase in expenditure in the defence field). The need to be aware of these matters were highlighted, and that further information about the issues would benefit the Board.

In response to a further comment regarding being open to the impact of the risk of the China market, considering the perspective of the US Republican Party and the investments with China, it was noted, via the WPP, that quite a sum had been invested in the global equity fund but that the sum had been split over a number of countries.  It was reiterated that experts were monitoring the situation.

RESOLVED to accept and note the information