Agenda item

Report FSD21057

The Committee received a summary of the investment performance of Bromley’s Pension Fund in the 1^st quarter of 2021/22. The value of the fund had risen to £1.405bn by the end of June 2021.The report also contained information on general financial and membership trends of the Pension Fund and summarised information on early retirements.

Fidelity were due to present at the Committee’s next scheduled meeting on 2^nd December, with Schroders presenting on 22^nd February. The Chairman suggested that, as he, the Vice-Chairman and the Director of Finance had met with Fidelity recently, it would be more worthwhile to invite another manager – possibly MFS.

John Arthur of MJ Hudson presented his report (Appendix 5 to the report.) The Fund was performing as expected, and outperforming benchmarks by 1%. Overall, this had been a good quarter and all managers had performed well. Most of the Fund’s risk remained in its equity position, which was 60% of the Fund, but he advised against de-risking as bond yields were so low. However, he expected inflation to peak above 4% in the UK by the end of the year which could see interest rates and bond yields rising.

Responding to questions, he expected that the third quarter would be flat or slightly down, though he was not aware of any concerns about any of the managers. On asset allocation, the Fund was 4.6% overweight on equities, but the decision to shift $20m to multi-asset income would marginally reduce this.

The Committee discussed the Revenue Account figures presented in appendix 4, which showed a surplus of £3.7m – the Director of Finance referred to the reinvestment monies impacting on the cashflow and the table would be updated in future to make that position clearer (net cash flow and cash flow before reinvestment.)

The issue of whether the Council should hold a maximum percentage of any fund was discussed – the Chairman suggested that this should be discussed further in 2022.

The Director of Finance reported that a US dollar fund had been identified to hold cash ready for investing with Morgan Stanley. Mr Arthur explained that the assets needed to be liquid and available at short notice, so the return was likely to be below 2%. 

Mr Arthur commented that he thought that inflation was being under-estimated, and while the supply chain disruption would be overcome there were cost pressures on most companies that were not just caused by restricted supply. He anticipated a period of relatively low growth with higher inflation but not significantly higher interest rates. Returns form all asset classes could be expected to be relatively low for the next decade.

The Chairman commented that the Fund’s cashflow position was likely to be strong until 2028, but this situation could change. He was a little concerned that, as equities had been strong for a good decade there might be a case for de-risking. Mr Arthur responded that de-risking should not be into government bonds – the Fund’s outlook was long-term and there was no need to worry about short-term volatility. A Member suggested that there might be a need to hedge against inflation – possibly with gold. Mr Arthur confirmed that gold was included in MJ Hudson’s analysis if they were appointed to conduct the next Asset Allocation Review.

The Director of Finance reported that Bromley had received another award – for Excellence in Asset Management. The Chairman thanked the Finance Team on behalf of Members.

MJ Hudson provided an additional report on Private Equity which the Committee discussed. The report provided interesting information but Members accepted that no action should be taken until the Asset Allocation Review.

The Chairman commented on the continued high level of discussion about ESG issues. He felt that the right approach to encourage change was for the Council to engage with its fund Managers, and there was evidence from Baillie Gifford that substantial investment was being made in green technologies.

RESOLVED that

(1)  The contents of the report and the information in the related appendices be noted.

(2)  No action be taken at the current time on investing in Private Equity.