Agenda item

To receive a presentation from the Wales Pension Partnership Operator on the implementation of the Pool and Fund assets.

The Chairman welcomed Sasha Mandich (Russell Investments) and Duncan Lowman (Link Fund Solutions) and congratulated Link and Russell on their appointment as operator to the Wales Pension Partnership (WPP). Mr Lowman thanked the Chairman, introduced Link and Russell and briefly set out the agenda.  Mr Lowman explained that Link will operate the pool on behalf of WPP and Russell Investments will advise WPP on manager selection.  The presentation gave an overview of their businesses and experience in these areas.

Cllr Palmer, as a new member of the Committee, asked the presenters to explain the meaning of the acronyms during the presentations.

The Pool is an FCA Authorised Contractual Scheme (ACS) using Northern Trust as the custodian and administrator.   The investment managers would be appointed to the platform. The benefit of an ACS structure is that it is possible to recover tax e.g. tax on dividends which can’t be recovered under other arrangements.

The WPP objectives are critical to the set-up of the pooling arrangements and these are:

·         To allow each Fund (through the use of sub-funds) to implement their own investment strategy which continues to be determined by the Committee for the Clwyd Fund

·         To reduce and control costs and maximise tax efficiency

·         Allow access to “best of breed” asset managers which complement each other  through improved governance which is determined by WPP through its governance structure

·         Improve scale by accessing a bigger pool of assets and adopt best practice portfolio management

The first phase of the project will be to implement Global Equity sub-funds as they are the largest Assets under Management (AUM) across Wales.  The target date to approve the manager line-up is 15^th March.  Fee negotiations with the managers are ongoing.  There is a project plan (as summarised in the slides) which targets FCA submission on 1 May.

Mrs McWilliam asked whether they have decided on the Fund managers and who makes this decision. It was confirmed that the decision will be approved by the Joint Governance Committee (JGC) in consultation with Russell and Link.  Mrs McWilliam also asked whether it is realistic that the approval of equity managers will be completed by 15^th March. Mr Lowman confirmed that, in his view, they will be and more discussions will be held on Monday 26^th February which will discuss the various options.

Mr Mandich presented to the Committee and highlighted the key points;

·         Within each sub-fund, rather than hiring one manager, Link and Russell help the Fund diversify manager risk. This is done by proposing a line-up of managers that complement each other as the aim is for a better than median market return but a lower risk due to the diversification.

·         Summarised details of Russell’s manager research approach which is a combination of the 4 P’s of manager research – Qualitative (People & Process) and Quantitative (Portfolio & Performance).

·         Highlighted that past performance is a bad indicator of future performance. Therefore they do not rank a manager on how they have performed in the past; they base it on the future expected performance.

·         A lot of high quality analysis is involved in gathering the best managers for the Fund (there are 44 full time manager research analysts). The analysis involves interviews, ongoing dialogue and analysing every trade that has been made with their portfolio. 

·         Each manager would be ranked based on these criteria.

Mrs Fielder asked whether there is a possibility of all the pools chasing the “best in breed” managers, which could cause capacity issues and put strain on the managers which impairs performance.  Mr Mandich responded by stating that each manager has an individual manager style and some managers will have limitations on AUM. Mr Mandich confirmed that the recommendation from Russell would consider capacity issues and limits for investments placed would also be agreed.

Mrs Fielder also asked about the focus on responsible investment. Mr Mandich confirmed that this has been a big focus for a number of years and is one of the factors which is rated as part of the research.  It was highlighted that all Funds would like to do something on ESG (Environmental, Social and Governance Investing) but to make it work on a pooling level, but there needs to be more consistency. This would mean getting Funds and possibly Pools to move to a common policy to gain the advantage of scale. 

Mr Middleman asked whether they apply different weightings to the 4 P’s depending on which asset classes e.g. if manager skill is seen to be more important than some process factors. Mr Mandich confirmed that they are fairly uniform and consistent across all classes.

Mrs McWilliam asked how the process would work in relation to some of the Welsh infrastructure opportunities. Mr Mandich replied stating that it is very early to tell but they can consider across the WPP and access expertise if necessary to gather more research. He confirmed that the Funds will be fully supported.

Mr Everett commented that it is likely that the relevant parties would come to the Funds regarding an investment opportunity rather than managers researching and finding these opportunities. Mr Mandich noted that it could be agreed to allocate a percentage of the assets to these opportunities and this would be discussed at the WPP.

The discussion moved onto the specific update for the Clwyd Fund.  There were 6 strategy buckets discussed:

·         Equities – Active mandates with Investec likely to move to Global equity sub-fund.   Emerging markets sub-fund to be launched to by the end of the year.  This will allow £200m to be moved.  In addition the Blackrock asset (£70m) is already part of the passive mandate consolidation in Wales.

·         Credit – current multi-asset credit holding (£200m) potentially of interest to other Welsh funds.  Discussion is ongoing with Stone Harbor on how that can be implemented on the platform.  Private credit (£14m) is more complex to move so would take more time to consider.

·         Managed Platform – Russell/Link meeting to discuss this with ManFRM for the existing assets (£150m) as the platform is potentially scalable for other Welsh Funds.

·         Tactical - DGF mandates (£170m) likely to benefit from lower fees through consolidation.  Exploring options to move Best Ideas portfolio (£200m) onto platform.

·         Real Assets and Private Markets – assets (£350m) unlikely to move in 2018 due to liquidity and lack of overlap with other Welsh Funds.

·         LDI – assets (£400m) hardest to pool as customised and requires data feeds and specific reporting.  

Mr Mandich emphasised it was not the intention to force assets onto the platform for the sake of it. 

Mr Latham noted that the decisions regarding investments such as the Multi Asset Credit will now be made by the JGC so will require wider support from Wales. Mr Mandich confirmed this.

Mrs McWilliam asked whether there may be some other vehicles which are better for the assets to be managed other than the ACS.  Mr Mandich responded by saying that, yes that is correct and needs to be considered.  The ACS structure works is for global equities which is the starting point.

The Chairman asked whether there is anything else the Fund can do to support their work. Mr Mandich replied no stating that Mr Latham and Mrs Fielder have supplied excellent support in relation to how to move forward.

The Chairman thanked Mr Mandich and Mr Lowman for their presentation and looked forward to future updates.