Agenda item

Report FSD20023

As requested at its last meeting, the Sub-Committee received a follow-up report from MJ Hudson Allenbridge presenting further information and options for the future asset allocation strategy for the Pension Fund on the choice between investing in International Property Funds and in US Property Funds for the as yet unallocated 5% remaining.

John Arthur of MJ Hudson Allenbridge attended the meeting to brief the Sub-Committee. He reminded Members that the aim was to manage risk, and drew attention to the efficient frontier chart on page 3 of the report. He recommended investing in international property, rather than US property, which gave wider diversification. He explained the broad categories of property fund set out in the report – in particular Core, Core-Plus, Value-Add and Opportunistic – and suggested a Value-Add approach which, although involving more risk, would allow fund managers to invest where they saw the most value. He did not recommend investing in US or international REITS (Real Estate Investment Trusts) given their correlation with equities and the objective to seek diversification of risks. 

The Sub-Committee discussed the options available. It was noted that the aim was to reduce risk, and a member commented that some of the returns suggested for property of up to 10% appeared to be too high – risky and unrealistic. Members also raised issues around the different rules in different countries, the risk of a downturn, currency risk and the need for diversification. A member raised the position of WeWork, and the risk of a bubble. John Arthur responded that the situation with WeWork was already well known, and that with property location of individual sites was always crucial. He explained that investing in buying property would not produce immediate value, as rental streams would be low until work had been undertaken to improve the property.

Some members were not supporters of investing in property, but suggested that if the Council did go for property it should reduce the risk by going through a fund. A motion to invest in REITS was moved by Councillor Stevens and seconded by Councillor Fawthrop, but this was not supported.

John Arthur advised that investing in core real estate required going through a large property house with substantial resources. However, he favoured a more entrepreneurial approach, particularly as cash-flow was not a significant requirement over the next four to five years. A member commented that the debate was too hypothetical at this stage – the Sub-Committee needed to identify a manager or a fund. Mr Arthur suggested a shortlist of managers was required.

The Committee concluded that more information was needed for the next meeting on 13^th February, although the turn-around was very tight. The Director of Finance suggested that he could ask Fidelity for a briefing and they could be asked to attend. It was also suggested that Mercer be asked for their advice on this issue. 

RESOLVED that

(1) The contents of the report be noted.

(2) A further report be made to the next meeting to allow members to consider the options of core, core-plus and value-add international property investment opportunities.