Issue - meetings

The economic and market update and performance was noted by Committee.

The Fund’s Investment Consultant, Steve Turner of Mercer explained that this report was to be taken as read, and highlighted some key messages:

-       Inflation in the UK is persistent and higher than other countries, leading to higher interest rates. The Fund has gone through further interest rate triggers in the framework, so is now at 60% level interest hedging vs liabilities, compared to an ultimate target of 70%. The inflation hedging level remains around 40%. This meant the Fund could expect greater certainty of achieving the return needed to meet the pension liabilities over the long-term, leading to improved stability in the funding level.

-       Return seeking markets in the year to date have been positive generally, especially in global equities where returns have been driven by a small number of companies involved with artificial intelligence (AI).

-       MAC remained an attractive asset class for risk-adjusted returns, given the level of yields available.

Mr Hibbert commented that there are some wider criticisms of AI, and Mr Turner noted that the market appears to be looking towards productive uses of AI.

Cllr Wedlake noted that interest rates globally may fall sooner than in the UK, and asked if there is a downside to hedging that could affect the fund as rates reduce. Mr Turner noted that the US Federal Reserve typically leads other central banks, and tends to have a strong influence globally on markets. If yields fall, this is expected to be very positive for other asset classes, particularly equities and credit.

RESOLVED:

The economic and market update and performance was noted by Committee.