Agenda and minutes

To confirm the Minutes of the meeting held on 28 October 2020.

RESOLVED:

THAT the Minutes of the meeting held on 28 October 2020 be confirmed, subject to the inclusion of additional wording for clarity in Minute 26.

To invite Members to declare any interest they might have in the matters on the agenda.

No new declarations were received at this stage.

Questions must be delivered in writing or by electronic mail to democratic.services@iow.gov.ukno later than 10.00amon Monday 23 November  2020. Each question must give the name and address of the questioner.

No public questions were received.

To hear from the Director of Finance and Section 151 Officer in respect of activities to improve the fund’s level of compliance with standards of governance and administration.

As requested at the meeting held on 28 October 2020, the Director of Finance and Section 151 Officer was in attendance to provide an update in respect of activities to improve the fund’s level of compliance with standards of governance and administration.

The Director of Finance expressed the view that the current resource allocated to support the pension function was no longer sufficient. It was advised that plans were underway to increase the number of full-time-equivalent staff focused on matters regarding the fund, which would be a relevant charge to the fund associated with good governance. Members were pleased to note that plans were in place for the Technical Finance Manager’s role to become focused solely on pension matters.

Questions were raised regarding the relevant HR recruitment and restructure processes, and members emphasised the need for retention of specialist knowledge. With regard to timescales, it was anticipated that these plans would be implemented by the start of the next financial year and an update would be available to the committee at its meeting in March 2021.

RESOLVED:

THAT the update be noted.

To receive an update on the approval of the council’s statement of accounts and the pension fund’s annual report and accounts, following the meeting of the Audit Committee held on 23 November 2020.

The Technical Finance Manager advised that at the meeting of the Audit Committee held on 23 November 2020, the external auditors confirmed that they found no significant issues and intended to issue an unqualified opinion on the fund’s accounts, and were therefore able to close the audit of the pension fund.

Subsequent to this meeting, confirmation had been received that the external auditors would sign their audit opinions by 27 November 2020. Members were advised that upon receipt of the formally signed audit certificates, the pension fund’s annual report and accounts would be published on the fund’s website.

RESOLVED:

THAT the update on the approval of the council’s statement of accounts, and the pension fund’s annual report and accounts, be noted.

To record the decision from the selection panel for the Private Debt allocation.

The Technical Finance Manager presented the report which set out the outcome of the selection of an investment solution to deliver the fund’s private debt allocation. Members were advised that on 6 November 2020, an investment selection panel was convened to receive presentations from four shortlisted fund managers suitable to deliver the fund’s new allocation to private debt.

Following the presentations and moderation, the panel agreed to invest in the Goldman Sachs Merchant Banking Division Broad Street Loan Partners IV fund. Subsequent to this decision, officers had begun work with Hymans Robertson to inform the shortlisted managers of the interim decision and to progress the implementation of these investments. Comments were made with regards to diversity of the investment team and the legal documentation.

It was confirmed that the deadline for finalising the application to the investment solution was mid-December 2020, and officers anticipated that the fund would have an initial investment in this asset class by the end of the financial year. Progress reports would be brought to the committee in due course.

Following discussion, a vote was taken and it was:

RESOLVED:

THAT the committee agrees the selection of the Goldman Sachs Merchant Banking Division Broad Street Local Partners IV fund for the delivery of the fund’s private debt allocation.

To receive and note a verbal update confirming the arrangements for the second manager selection day taking place on 6 December 2020.

The Technical Finance Manager confirmed the arrangements for the infrastructure  manager selection day due to take place on 4 December 2020. Confirmed panel members included; Cllrs Andre, Axford, Churchman, and Garratt, the Director of Finance and Section 151 Officer, the Treasury Management and Pension Fund Accountant, and the Technical Finance Manager. The session would be facilitated by Hymans Robertson and would be attended by three shortlisted fund managers. It was anticipated that a decision would be reached by the end of the day on 4 December 2020, which was to be presented to and ratified by the Committee at it’s meeting on 27 January 2021.

RESOLVED:

THAT the arrangements for the infrastructure manager selection day (due to take place on 4 December 2020) be noted.

To receive an update on recent developments in legislative requirements, statutory guidance and requirements of the Pensions Regulator.

The Technical Finance Manager presented the report which provided members with information regarding the recent legislative changes in respect of restricting local government exit payments and the associated implications for the pension fund. Members were reminded that their focus should be on the proper implementation of the new regulations for the pension fund, rather than the content of the regulations themselves.

In light of the changes, it was confirmed that the council as scheme employer had reviewed its existing restructuring proposals to determine whether there are any immediate cases which could breach the exit cap. Led by the Director of Corporate Resources, a working group had been convened to review the council’s existing policies and processes to implement the exit cap. Members were advised that revised LGPS regulations, to facilitate the full implementation of the exit cap, were currently being consulted upon by MHCLG, and the consultation would not close until 18 December 2020. The revised regulations would not therefore become law until the first quarter of 2021. Since publication of the report (and in conjunction with other pension funds in the ACCESS pool), legal advice had been received regarding the implementation of the exit cap in the interim period before the introduction of the new LGPS regulations. It was proposed that the fund should implement the solution suggested by the Scheme Advisory Board, in that any impacted members should be offered the opportunity to take a deferred benefit at normal retirement age (or an immediate but fully actuarially reduced pension), and it was recommended that scheme employers delay the payment of a cash alternative to impacted members. It was anticipated that members would challenge the proposed treatment, as it was not in compliance with existing LGPS regulations. However, until such time as a challenge be received and resolved through the courts or tribunal, the proposed solution is the “least worst” outcome for pension funds.

Following discussion, a vote was taken and it was:

RESOLVED:

i)               THAT the ongoing developments in respect of the implementation of the exit cap be noted.

ii)              THAT the Isle of Wight Council Pension Fund offers impacted members the opportunity to take a deferred benefit under LGPS regulation 6 or a fully actuarially reduced pension under LGPS regulation 30(5).

iii)            THAT the Isle of Wight Council Pension Fund recommends to scheme employers to delay the payment of a cash alternative under regulation 8 of the Exit Cap Regulations.

To receive and note the Hymans Robertson investment performance report for the quarter ended 30 September 2020, including fund manager performance.

Due to a fire alarm, the Chairman left the meeting and the Vice-Chairman, Cllr Churchman, took the chair.

The Investment Consultant of Hymans Robertson presented the investment performance report for the quarter ended 30 September 2020, which included a summary of market returns, capital market outlook, asset allocation, fund performance, and fund manager performance. 

RESOLVED:

THAT the update be noted.

At the conclusion of discussion, members adjourned for a 10-minute comfort break.

To receive and note a presentation on the fund’s Fixed Income and Property portfolios, delivered by representatives of Schroder Investment Management.

The Chairman re-entered the meeting and took the Chair.

The Investment Director (Fixed Income) of Schroder Investment Management delivered a presentation (Appendix 1) on the Schroder Sterling Broad Market Bond Fund. This included an overview of the portfolio, and updates on global fixed income, investment themes, and the post-Covid-19 response. Discussion took place regarding the performance summary as at 30 September 2020, 5-year performance, country exposure, and the evolution of non-government sector allocation.

The Real Estate Capital Manager of Schroder Investment Management delivered a presentation (Appendix 2) on the Schroder UK Real Estate Fund. This included a summary of fund performance and an economic recovery forecast. Members noted the funds position and the updates on strategic priorities, new acquisitions, Covid-19 strategy, and tenant engagement.

RESOLVED:

THAT the update be noted.

To note items circulated to committee members since the papers were published for last committee meeting (20 October 2020), for information:

a)    Sent 26-Oct-20: Invitation to AON webinar on Cyber Risk in the LGPS.

b)    Sent 28-Oct-20: slides and recording from development session.

c)     Sent 02-Nov-20: MHCLG letter to LAs re implementation of £95k cap.

d)    Sent 02-Nov-20: LGA draft response to MHCLG consultation re: LG exit pay.

e)    Sent 02-Nov-20: Hymans Robertson Exit pay reform updates.

f)      Sent 02-Nov-20: Change of start time for 25-Nov-20 committee meeting.

g)    Sent 04-Nov-20: Invitation to Hymans webinar – LGPS responsible investment

h)    Sent 04-Nov-20: Deferral of 25-11-20 post-committee workshop to 27-01-21.

i)      Sent 04-Nov-20: revised invitation to private debt selection day.

j)      Sent 05-Nov-20: November issue of The Edit.

k)     Sent 09-Nov-20: ACCESS JC papers 12-Nov-20.

l)      Sent 10-Nov-20: LGA exit cap information for employers/ administering authorities.

m)   Sent 11-Nov-20: LGPC Bulletin 203.

n)    Sent 11-Nov-20: Keeping the LGPS Connected 19-Nov-20 invitation.

o)    Sent 12-Nov-20: Invitation ACCESS virtual investor day 17-Dec-20.

The committee noted the items circulated for information since papers were published for last meeting. Attention was drawn to the invitation to the ACCESS virtual investor day due to take place on 17 December 2020, which members were encouraged to attend.

RESOLVED:

THAT the items circulated for member’s attention be noted.

A question must be submitted in writing or by electronic mail to Democratic Services no later than 10.00am on Tuesday, 24 November 2020.

No member’s questions were received.

To consider passing a resolution that, under Section 100(A)(4) of the Local Government Act 1972, the public and press be excluded from the meeting for the following item of business, namely agenda items 14 and 15 on the grounds that there is likely to be disclosure of exempt information as defined in paragraphs 3 of Part 1 of Schedule 12A of the Act and in all the circumstances of the case, the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

RESOLVED:

THAT the public and press be excluded.

To receive an update on activity within the ACCESS pool since the last committee meeting.

The Technical Finance Manager provided an update on recent activity within the ACCESS pool since the last committee meeting. Members were invited to confirm their attendance at the next virtual ACCESS joint committee meeting due to be held in January 2021.

RESOLVED:

THAT the update be noted.

To consider a confidential report from Hymans Robertson on the process by which the fund’s allocation to equities will be rebalanced.

The Investment Consultant of Hymans Robertson presented the confidential report which outlined the process by which the fund’s allocation to equities would be rebalanced.

It was recommended that the Committee adopt a new equity investment strategy which would provide an optimal blend of equity exposure across a number of factors; and would be the first step in implementing the Committee’s environmental and social governance and responsible investment beliefs into the Fund’s investment strategy (particularly to address climate change).

Members agreed to adopt the new strategy and requested that a development session be arranged to better understand the current climate change impact of the Fund’s investment strategy following the next meeting of the Committee in January 2021.

Following discussion, a vote was taken and it was:

RESOLVED:

i)               THAT the proposed new equity investment strategy be adopted; to provide a more optimal blend of equity exposure across a number of factors and as a first step in implementing the Committee’s environmental and social governance and responsible investment beliefs into the Fund’s investment strategy, particularly to address climate change. The strategic changes include:

·       Reducing the allocation to Majedie UK equities from 22.5% to 12.5% (initial reduction of 5% to 17.5% pending funding of private debt).

·       Reducing the allocation to Newton Global equities from 32.5% to 18.75%.

·       Introducing a new allocation of 18.75% to the UBS Climate Aware fund, funded 5% from Majedie and13.75% from Newton.

·       Continuing to reduce the overall equity exposure by 5% by seeding the new 5% Private Debt allocation from Majedie UK Equities.

ii)              THAT the Committee agrees to establish more robust environmental and social governance monitoring to better understand the current impact of the Fund’s investment strategy, such as carbon foot printing.