Agenda and minutes

Apologies for absence were received from Councillors Simon Fawthrop, Simon Jeal and Sam Webber and Councillors Robert Evans, Chris Price and Julie Ireland attended as their respective substitutes.  Apologies for absence were also received from Councillor Ruth McGregor.

The Chairman led Members in welcoming Councillor Josh Coldspring-White who had been appointed to the Committee.

There were no additional declarations of interest.

In accordance with the Council’s Constitution, members of the public may submit one question each on matters relating to the work of the Committee. Questions must have been received in writing 10 working days before the date of the meeting - by 5.00pm on Thursday 30 November 2023. 

Questions seeking clarification of the details of a report on the agenda may be accepted within two working days of the normal publication date of the agenda – by 5.00pm on Friday 8 December 2023. 

One question for oral reply and three questions for written reply were received at the meeting.  A copy of those questions, together with the Chairman’s response can be viewed at Appendix A to these Minutes.

RESOLVED: That the minutes of the meeting held on 11 September 2023 be approved.

RESOLVED: That matters outstanding be noted.

The Committee received a presentation from MFS representatives, Paul Fairbrother, ASIP, Equity Institutional Portfolio Manager and Elaine Alston, Managing Director – Institutional Relationship Management providing an investment update on the London Borough of Bromley Fund.

In considering the presentation, the Chairman was pleased to note that key characteristics of MFS’s investment strategy included being defensive and generating cashflow which was a satisfactory approach for the Bromley Pension Scheme that helped to minimise risk.  The Chairman queried whether a recession was likely in the short- to medium-term and the Portfolio Manager advised what whilst MFS did not try to predict such turning points, the consensus view of much of the industry was that there would be a recession but that it would be shallower than previously anticipated.  It was likely that interest rates would reduce during the course of the year, and this would help stimulate growth.  In response to a follow-up question from a Member, the Portfolio Manager agreed that some companies could be said to be displaying exuberance as a result of recent growth and that this was at variance to MFS’s value-style approach to investment that was primarily based on business durability and valuation.

A Member asked about the time spent considering effective tax rates and the Portfolio Manager explained that MFS tried to normalise tax rates.  Any advantage secured by companies based in low tax regimes would likely be finite in the challenging economic climate where a medium- to long--term trend towards higher interest rates and higher taxes was anticipated.  In response to another Member’s question on MFS’s approach to exchange rates and currencies, the Portfolio Manager confirmed that MFS generally chose not to hedge currencies with a significant proportion of its Portfolio holdings listed in the UK even where revenue was earned elsewhere.  Another Member asked how performance would look without the Mega 7 stocks that had driven growth in the United States and the Portfolio Manager advised that just over half of the gap between MFS’s performance and that of the Index was caused by the Mega-Cap effect both in terms of the relative growth and the value of stock.  The Member went on to ask about the investment in Taiwan Semiconductor Manufacturing Company Limited and queried if there were any concerns over geopolitical risk.  The Portfolio Manager clarified that this investment only formed a small proportion of the overall fund, and that risk was mitigated in part by the company’s investment in other parts of the world, including the United States and Germany.  MFS did not invest in many emerging markets and where it did, it tended to invest in diversified global businesses that were western-listed companies. 

The Senior Advisor: Apex Group Ltd noted that an interesting question on climate change and disinvestment had been put to the Committee earlier in the meeting and asked for the Portfolio Manager’s view on this.  The Portfolio Manager was pleased to announce that MFS was committed to be 100% Net Zero by 2050 and 90% by 2030,  ...  view the full minutes text for item 32.

Report FSD23081

The report provided a summary of the investment performance of Bromley’s Pension fund in Quarter 2 of the 2023/24 financial year and included information on general financial and membership trends of the Pension Fund as well as details of key developments in the Local Government Pension Fund (LGPS) expected during the next five years.

The Committee received an update from the Senior Advisor: Apex Group Ltd who suggested three possible outcomes to the current economic situation.  This comprised a slowing of United States economy as interest rate rises took effect; that economic growth in the United States would continue and prompt further raising of interest rates; or that something would break creating a highly destabilising investment environment.  The Chairman queried what action the Committee could take to protect against any such destabilisation and the Senior Advisor: Apex Group Ltd observed that the recent transfer of 5% or £65M from the Baillie Gifford Global Equity Portfolio into a Short-Dated UK Corporate Bond fund to rebalance the Bromley Fund’s tactical asset allocation nearer to the Strategic Asset Allocation Benchmark had helped mitigate the potential risk.  The contrasting investment strategies of MFS and Baillie Gifford also provided a key balancing factor in what was an increasingly volatile economic environment.  A Member expressed concern at potential overlap between the MFS and Baillie Gifford Portfolios and the Senior Advisor: Apex Group Ltd agreed to undertake an analytical exercise to identify the level of overlap between the two Portfolios as well as relative performance against the benchmark to be reported to a future meeting of the Pensions Committee.  The Member also requested that further details on the investment in Taiwan Semiconductor Manufacturing Company Limited be included in the next quarterly report with the geopolitical risk flagged on the risk register.

A Member was concerned about Baillie Gifford’s recent performance and voiced their increasing scepticism about Baillie Gifford’s approach to investing what was the Bromley Pension Scheme’s biggest fund.  The Senior Advisor: Apex Group Ltd emphasised Baillie Gifford’s strong investment philosophy and process, including in the area of Environmental, Social and Governance.  Close scrutiny would be placed on Baillie Gifford’s performance moving forward by both the Local Authority and the London Collective Investment Vehicle in which this investment was held.  Baillie Gifford could also be invited to attend meetings of the Pension Committee whenever it was felt that additional scrutiny was needed.  The Senior Advisor: Apex Group Ltd further suggested that moving forward, the Committee consider producing documentation that set out its ongoing commitment to Environmental, Social and Governance and the Chairman confirmed that the Committee would take this forward over the coming year.

The Committee went on to discuss the purpose of the investment strategy of the Bromley Pension Fund which was to secure sufficient cashflow to cover outgoing pension payments without the sale of investments and, as a fully funded Pension Scheme, alleviate any pressure on Council Tax payers by not requiring any top-up from the Local Authority’s General Fund.  The Chairman added  ...  view the full minutes text for item 33.

The Chairman and the Director of Finance provided a Part 1 (Public) update to the Committee on recent developments relating to pensions.

The Chairman advised that work was ongoing with Fidelity to address concerns around the performance of its Multi-Asset Income Funds.  This would be closely monitored and Fidelity had also agreed to waive its fund management fee for the 2023/24 financial year.  The Local Authority continued to strengthen its relationship with the London Collective Investment Vehicle (LCIV), including the Chairman serving on the Cost Transparency Working Group, and the LCIV had recently agreed a 10% reduction in the Development Funding Charge that would realise a saving for the Local Authority.  Going forward, the Chairman had proposed that representation by London Councils on the LCIV Board be reviewed as it did not fit the current governance model and was also advocating for the formal Shareholder Committees to be abolished and replaced by a more informal arrangement to encourage greater participation and an active exchange of ideas by all London Boroughs. 

The Director of Finance announced that the annual Pension seminar would take place at 7.00pm on 6 March 2024 and all Members were encouraged to attend.

RESOLVED: That discussions under the Part 1 (Public) update be noted.

RESOLVED that the Press and public be excluded during consideration of the items of business referred to below as it is likely in view of the nature of the business to be transacted or the nature of the proceedings that if members of the Press and public were present there would be disclosure to them of exempt information.

The following summaries

refer to matters

involving exempt information

The Committee considered Part 2 (Exempt) information for Item 7: Pension Fund Performance Q2 2023/24.

No Part 2 (Exempt) update was given.