Agenda item

Report FSD21076

The report provided a summary of the investment performance of Bromley’s Pension Fund in the 2nd quarter of 2021/22. The report also contained information on general financial and membership trends of the Pension Fund and summarised information on early retirements.

The report included a quarterly report from MJ Hudson, the Fund’s external investment advisor. John Arthur of MJ Hudson presented the report. He commented in particular on inflation, which had been expected at around 3%, but was now anticipated to peak at 6%, then decline as supply chain issues lessened. Wage inflation, particularly at the lower end, was currently a factor, and the impact of de-carbonising the world economy would have a lasting impact. He expected inflationary pressures to linger longer than central banks were currently predicting. With a high level of government debt, central banks would be reluctant to raise interest rates to protect growth. Overall, he expected returns to struggle for the next couple of years. There was diversification in the Fund, but other approaches that could be considered were direct lending and investment in social/affordable housing.

The Fund had risen 0.37% in value over the quarter, and was valued at over £1.4bn. However, the figures excluded the US dollar cash holding and the Morgan Stanley International Property fund – this would be corrected in the next quarter’s figures. Baillie Gifford had underperformed over the quarter, after their earlier exceptional performance, but Mr Arthur was confident that their approach would add value in the long-term. UK Property was the best performing asset over the quarter at 6.6% per annum. A first drawdown into the International Property Fund had been made during the quarter, with a second drawdown having now been made after quarter end. 

The report also included a section on Environmental, Social and Governance (ESG) – Mr Arthur suggested that he reported on this annually in future. Fund managers were taking ESG into account, especially in Fixed Interest, but not all companies were producing figures, especially in emerging markets.

The Committee discussed the recent performance of Baillie Gifford, and their prospects for the next few years, compared with the contrasting lower risk  approach of MFS. Mr Arthur advised that Baillie Gifford were good at anticipating which companies would be successful; they were expecting the major technology companies to be restricted by regulatory challenges, leading to disruption and opportunities for the next generation of companies. While he would not be against switching funds to MFS, he still had confidence in the Baillie Gifford approach, and reminded the Committee that there would be transition costs. The Chairman suggested that rather than incurring costs by switching managers a cheaper alternative might be to consider some of Baillie Gifford’s lower-risk products.

Commenting on the Pension Fund Revenue Account and Membership table at page 13 in the agenda, a Member raised the issue of the declining number of employees making contributions into the Fund, and requested a more detailed cashflow. Officers had carried out a revised cashflow forecast recently, and this could be circulated. The change to the figures requested at the previous meeting had been incorporated – an additional line covering the surplus or deficit.

RESOLVED that the contents of the report and the information contained in the related appendices be noted.