Issue - meetings
Funding and Flight Path Update
Meeting: 04/09/2019 - Clwyd Pension Fund Committee (Item 26)
26 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 position (on assumptions consistent with the 2016 valuation) and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework;
(b) The Committee noted that the equity protection structure has now been revised to increase the level of protection; and
(c) That the Committee noted that any currency risk associated with the market value of the synthetic equity portfolio and the developed equity markets which have now been fully hedged.
Minutes:
Mr Middleman noted that the critical part of the funding and investment is to control the risk which is done via the flightpath. He noted that the equity protection levels had been increased by 5% of the c£350m covered.
He noted that the opportunity was taken to increase the hedging protection on currency to c75% overall to lock in gains to date. This was on the basis that a No Deal Brexit was less likely.
Cllr Bateman queried whether the process of hedging is costly. Mr Middleman confirmed that there is a cost to hedging, varying from the cost of implementation and the ongoing cost of controlling that risk. The key is to consider the “value for money” of the hedging versus the cost and this is always done as part of the process of deciding whether to implement it. To date the overall benefit of the flightpath has far outweighed the cost.
Mr Harkin highlighted the cost on page 202, paragraph 1.07. He also noted that the depreciation of the pound resulted in a gain for the Fund because of the unhedged physical overseas equity exposure. He expressed that these gains needed to be banked so that if the pound strengthened, the Fund is able to keep the gains.
Mr Harkin said that there will be further details about this in the training session in October.
RESOLVED:
(a) That the Committee noted the updated funding position (on assumptions consistent with the 2016 valuation) and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework;
(b) The Committee noted that the equity protection structure has now been revised to increase the level of protection; and
(c) That the Committee noted that any currency risk associated with the market value of the synthetic equity portfolio and the developed equity markets which have now been fully hedged.