Issue - meetings
Funding and Flight Path Update
Meeting: 20/02/2019 - Clwyd Pension Fund Committee (Item 53)
53 Funding and Flight Path Update 
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To update Committee Members on the progress of
the funding position and liability hedging undertaken as part of
the Flight Path strategy for managing liability risks.
Additional documents:
Decision:
(a) That the Committee noted the updated funding and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework.
(b) That the Committee noted that the Officers have been working with their advisers in order to implement a collateral waterfall process at Insight to better manage collateral requirements. Insight are in the process of implementing the collateral waterfall which will be in place by end February 2019. It has also been agreed that c. £30m will be removed from the Insight QIAIF to be invested in infrastructure as directed by JLT in due course.
Minutes:
Mr Middleman noted the level of volatility in the markets recently and how it had affected funding positions. The funding level was 86% at the end of December 2018, increased to 89% at the end of January 2019 and is currently up to 91%. Whilst the funding level is volatile, he noted that the key thing is the future outlook and what Brexit will do to the economy and returns above inflation. It is important to note that the flightpath framework is working and that equity protection contributed positively when markets fell.
Mr Middleman talked through the collateral waterfall which is about making the framework operate as efficiently as possible. They identified £100m of collateral that could be released and used more efficiently to increase expected returns. All documents were signed and it is expected that the waterfall will be implemented by the end of the month. Page 288 sets out the reasons why the Fund are doing this, which is to maintain the same level of risk control in the LDI mandate but restructure it to maximise returns. The approach is expected to generate an additional yield of £3m per year.
The report does not cover the impact of Brexit and how resilient the Fund is when thinking about what could happen. The Fund is well diversified and has protections in place which deals as well as possible with most risks except currency. However, this has been discussed at the FRMG and Steering Group and it has been provisionally agreed to implement currency hedging at a level of 50%. This will “bank” some of the gains already made. The outcome of this will be reported in more detail at future meetings.
Mr Everett asked where the term collateral waterfall comes from. Mr Middleman confirmed that the waterfall relates to holding different types of assets (the three tiers referred to in the report) which are used at different points so the highest returning assets are used last thereby increasing the overall returns.
Mr Everett asked for further information regarding what this actually is and Mr Middleman confirmed that more information will be included in future reports.
It has also been agreed that c. £30m will be removed from the Insight QIAIF to be invested in infrastructure as directed by JLT in due course.
RESOLVED:
(a) That the Committee noted the updated funding and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework.
(b) That the Committee noted that the Officers have been working with their advisers in order to implement a collateral waterfall process at Insight to better manage collateral requirements. Insight are in the process of implementing the collateral waterfall which will be in place by end February 2019. It has also been agreed that c. £30m will be removed from the Insight QIAIF to be invested in infrastructure as directed by JLT in due course.