Agenda item

Report FSD20090

The Sub-Committee received a summary of the investment performance of Bromley’s Pension Fund in the 2nd quarter of 2020/21. More detail on investment performance was provided in a separate report from the Fund’s external adviser, MJ Hudson Allenbridge (Appendix 5 to the report). The report also contained information on general financial and membership trends of the Pension Fund and summarised information on early retirements. An additional Fossil Fuel Report appendix was circulated from the Investment Advisor.

John Arthur of MJ Hudson Allenbridge introduced the report and confirmed that the fund was performing well, with returns at 9% per annum over the last 23 years, which was above inflation and actuarial expectations. All the managers were performing as expected, with Baillie Gifford driving much of the out-performance. During the quarter, £40m had been removed from Baillie Gifford and re-invested into Multi-Asset Investment Funds – it was important to keep the portfolio balanced.

The Chairman referred to the additional liabilities resulting from the McCloud judgement and the information on cost transparency in the report. He reminded Members that it was important to challenge very good performance as well as poor performance, and Baillie Gifford would be invited to attend the next meeting as the normal round of updates was resumed.

Responding to a question about the prospects for the UK Property Fund, Mr Arthur commented that there appeared to be a change in what tenants required from their property, particularly from office space. Offices were likely to be less densely occupied with more space for meetings and the interaction that would support innovation. The old definitions of prime and sub-prime would have to be challenged and property managers would have to adapt to this in the office sector as well as in retail. The Fidelity UK Property Fund was well-placed, but at a point of high risk. There was a good selection of properties with little exposure to retail, including no Debenhams or Arcadia properties. Across the industry, retailers were paying about 50% of rents at present, but Fidelity were receiving about 93% of rent against an expected 98%. Four properties were being refurbished, which should allow them to take advantage of current trends and drive good returns once new tenants were found.

In terms of the general outlook, Mr Arthur saw continuing conflict and gridlock in the US system, and a rocky start to 2021 given the impact of Covid-19, but he expected a strong recovery, leading to a reversion to a low-growth, low inflation regime. A significant rise in inflation was a relatively low probability over the next three to four years, but if it did happen this would undermine both fixed interest and equity portfolios. Inflation above 3.5-4% could see a fall of 20-30% in fixed interest and a 20% fall in equities. How the industry dealt with spending on climate change was also a major issue. The fund should not be complacent, but should continue to monitor inflation and challenge itself and re-balance where necessary.

The Chairman suggested that, in the light of the current position, the three-year cycle of reviewing asset allocation might have to be re-visited. He also noted that the cash-flow position was on target.

RESOLVED that the report be noted.