Minutes:
The Committee received a presentation from Schroders representatives, Dorian Carrell, Head of Multi-Asset Income and Russell Smith, Client Director, UK Institutional providing an investment update on the London Borough of Bromley Fund.
In considering current performance against the benchmark, a Member asked whether a fixed income fund could offer a better return in the short- to medium-term. The Head of Multi-Asset Income clarified that the Fund was anticipated to have an average annual yield of 5.25% over the next three years, whilst preserving capital, but that this was based on a conservative estimate on the performance of equities and that the anticipated return would also likely benefit from capital growth. The Portfolio had a barbell-like structure in which investment in high-growth US companies was paired with valuation opportunities in the US and European markets. Consideration was also being given to incorporating a small-cap strategy that could capitalise on the greater growth potential of undervalued smaller companies.
A Member was concerned that the investment performance in the medium-term had reduced the buying power of the fund and the Head of Multi-Asset Income responded that the COVID-19 pandemic and the rapid rise of interest rates had put unprecedented stress on the financial markets, but the investment climate was now improving with stronger returns over the past 12-months. Going forward, the Portfolio would be reviewed in line with the Committee’s stated investment objectives of securing income with a degree of capital growth. The Member asked a more general question about excess cash generated by the investment of the Bromley Fund and the Senior Advisor: Apex Group Ltd explained that distributions from the two Multi-Asset Income funds were fed back into the fund as income but that there was also the option to move these funds into a fixed interest portfolio. Another Member spoke about the collapse of Credit Suisse and asked why hybrids had a zero allocation in the fund despite sizeable returns in some asset classes. The Head of Multi-Asset Income responded that following regulatory clarifications in Germany, France and Switzerland, the new bonds in this area offered reasonably attractive opportunities at Tiers 1 and 2 but that there were better opportunities available in the US market.
A Member queried the overview of Corporate Climate metrics given in the presentation. The Head of Multi-Asset Income clarified that whilst significant work was undertaken to provide a sense of the carbon position of the Portfolio, the quoted figures reflected the position relative to the benchmark rather than an actual carbon reduction. Work was ongoing to improve the quality of reporting in this increasingly important area. Another Member asked whether it would be possible to design a fund which limited carbon emissions to 1.5 degrees. The Head of Multi-Asset Income confirmed that this would be possible as some areas of the market had a direct impact on temperature change; however, a specific focus on investment type would likely have a substantial impact on investment income. In response to a final question from a Member, the Client Director, UK Institutional stated that Schroders was an inclusive organisation which encouraged open debate but that he was not aware of a formal Free Speech policy having been agreed.
The Chairman thanked the representatives of Schroders for their excellent presentation.
RESOLVED: That the presentation from Schroders be noted.