Agenda item

Report FSD21026

The report provided a summary of the investment performance of Bromley’s Pension Fund in the final quarter of 2020/21. More detail on investment performance was provided in a separate report from the Fund’s external adviser, John Arthur of MJ Hudson Allenbridge, which was attached as Appendix 1.

Mr Arthur reported that the Funds were performing as expected, with most managers exceeding benchmarks in the last quarter. With Baillie Gifford there was a slight under performance, but this followed massive over performance – outperforming its benchmark by 17% over a year. This was unlikely to occur again, and had to be viewed as an isolated event in an unusual year. With the scale of government stimulus, there had been a rapid recovery, but there were concerns about inflation, and falls in government bond yields in the UK and the USA.

Asked about the different investment strategies of MFS and Baillie Gifford, Mr Hudson responded that different approaches were needed for diversification and balance, and it was likely that in the high growth environment of the next eighteen months MFS was more likely to continue to outperform the benchmarks. However, Baillie Gifford’s expertise in research and stock selection was still resulting in impressive performance. His expectation was rapid growth for two years, leading to a relatively stable and slow moving global economy by 2025. He recommended maintaining long-term relationships with managers, rather than facing the transition costs and risks associated with chasing short term performance.

The Director of Finance reported that the overall fund had increased by 34.1% over the year, outperforming the benchmark by around 11%. Full details would be reported to the next meeting. It was confirmed that the market value of the fund had been £1,000.3m as at 31^st March 2020, and had risen to £1,313m as at 31^st December 2020. The Chairman thanked members of the Sub-Committee and the Director and his team for their contributions to the success of the fund.

John Arthur outlined his thoughts on inflation, which he saw as a key issue for at least the next two years. He considered that inflation in the USA was likely to be over 3% for the rest of the year, and there was a possibility of a period of 10- 20 years of higher inflation. It was important to position the Fund for this – fixed interest investments would remain relatively unattractive, and the Fund was already addressing this. Property was a better hedge against inflation than fixed interest or equities – changes in inflation expectations could undermine equity values.  In view of the current asset allocation situation, which was overweight in equities as they had performed well, he recommended adding £20m to the UK Property Portfolio, where fund managers were confident of good returns from properties currently being refurbished, to bring the weighting back to 5%. He also recommended allocating an additional £20m to the Fund’s Multi-Asset Income portfolios.

The Sub-Committee considered these recommendations. Liquidity was a concern for some Members with property funds, but there was general support for adding £20m to the property portfolio, and some members suggested moving an additional £20m to property rather than to Multi Asset Income, although this was not pursued. The Sub-Committee also discussed whether it was right to adjust their asset allocation, but Mr Arthur advised that his recommendations were intended to re-balance the Fund in line with the principles established at the last asset allocation review in 2020. 

A third recommendation in Mr Arthur’s report relating to the drawdown into the Morgan Stanley International Property Fund required no action but the situation would be monitored.

The report mentioned the Shareholder Rights Directive 11 (SRD11) which required EU and UK institutional investors and fund managers to make disclosures about their shareholder engagement and stewardship activities. It was confirmed that no action was required from the Fund.

The Chairman recommended that Sub-Committee members take advantage of training on public sector pensions/LGPS issues. 

RESOLVED that

(1) The contents of the report be noted.

(2) £20m be added to the Fidelity UK property portfolio to bring its weighting back into line with the SAA, the money to come from the Baillie Gifford equity fund.

(3) No action be taken on the recommendation to allocate an additional £20m from the Baillie Gifford fund to the Multi Asset Income portfolio to bring the weighting back to the SAA.