Agenda item

Report FSD21043

The Committee received a summary of the investment performance of Bromley’s Pension Fund in the 4^th quarter of 2020/21. The report also contained information on general financial and membership trends and summarised information on early retirements. The report gave an update on the repayment plan variation for Mytime which had now been agreed – the Director of Finance confirmed that the April, May and June payments had been received on 28^th June as agreed.

The report also included a quarterly report from John Arthur of MJ Hudson. Mr Arthur commented that the meeting was slightly too close to the end of the quarter, so final figures were not yet available, but he confirmed that performance for the quarter was still good. (He suggested that ideally for these reports meetings should be about six weeks after the end of each quarter.) He highlighted that the fund had deviated further from the Strategic Asset Allocation benchmark, and the cashflow situation was comfortable. He recommended taking the income from the two Fidelity Bond portfolios into the fund as cash, rather than re-investing. He also recommended taking up to £10m from global equity portfolios to cover expected future drawdowns, and that the sales be split within global equities with a target of achieving a 60/40 split between Baillie Gifford and MFS. 

The Committee discussed these recommendations. On the first recommendation, Councillor Simon Fawthrop suggested that the conversion of Fidelity Bond portfolios should be staggered to create a gradual transition, with 50% in year one, 75% in year two and 100% in year three. Other Members suggested that this was over-complicating the issue. The Director of Finance assured the Committee that he could use treasury management facilities to ensure that the money was used, and would report back to the Committee if the surplus became significant. 

The Committee discussed the second recommendation, which was to give delegated authority to the Director of Finance in consultation with the Chairman to raise up to £10m from global equity portfolios to cover future drawdowns to the Morgan Stanley International Property Fund. The Director informed Members that he would use treasury management flexibilities rather than hold cash. Councillor Christopher Marlow commented that there was a foreign exchange risk over the four year period, and suggested liquidating funds sooner to provide a pool of US dollars for the Morgan Stanley fund. He proposed that this could be done by purchasing US corporate bonds. 

The third recommendation was to discuss the desired balance between the two global equity portfolios (Baillie Gifford and MFS) to inform the level of sales. He proposed a 60/40 split, and this was agreed by the Committee.

The Committee discussed other issues from the report. It was noted that in Appendix 4 to the report the membership total as at 31/3/20 added up to 17,790, not 17,568. Auto enrolment had caused increases in membership, and the Chairman requested a more detailed breakdown of where the increases were occurring.

It was noted that the Taskforce for Climate Related Financial Disclosure (TCFD) recommendations would require additional reporting requirements. John Arthur reported that the extra costs would be borne by investment managers, and he would provide a consolidated report for Bromley. The Committee could consider at its next meeting the level of reporting that it would need in future. 

Mr Arthur rounded up a number of other significant points from his report – in particular he mentioned that the Fund now had a 60% exposure to equities, but it was well funded and could afford to bear this level of risk. He also commented that inflation was likely to be around 4% in both the USA and the UK by the end of the year. He suggested that the Committee should begin to think about the next asset allocation review and the level of risk it wanted to take. The next review was likely to be more complex than the last one.

RESOLVED that the report be noted and

(1) Fidelity Bond portfolios be converted to income distribution rather than reinvestment as at present.

(2) The Director of Finance be authorised to divest up to $20m from the global equity portfolio to purchase US corporate bonds for funds to be available for drawdown to the Morgan Stanley International Property Fund.

(3) The desired balance between the two global equity portfolios (Baillie Gifford and MFS) so as to inform the sales be targeted at 60/40.

(Councillor Simon Fawthrop requested that his vote against the first recommendation be recorded.)