Agenda, decisions and minutes

To receive any Declarations and advise Members accordingly.

There were no declarations of interest.

The Chair invited attendees to declare any potential conflicts of interest that they may have in relation to the Fund, other than those already recorded in the Fund’s register.

There were no declarations of interest.

Appointment of Vice Chair and note that the Chair and Vice Chair are therefore appointed as Member and Deputy respectively of the Joint Governance Committee for the Wales Pension Partnership.

The Committee appointed the Vice Chair and noted that the Chair and Vice Chair are therefore appointed as Member and Deputy respectively of the Joint Governance Committee (JGC) for the Wales Pension Partnership (WPP).

Following nominations by the Chair and Cllr Shallcross, the Committee reappointed Cllr Dave Hughes as Vice Chair of the Committee.

RESOLVED:

The Committee appointed the Vice Chair and noted that the Chair and Vice Chair are therefore appointed as Member and Deputy respectively of the Joint Governance Committee (JGC) for the Wales Pension Partnership (WPP).

To confirm as a correct record the minutes of the last meeting held on the 29 March 2023.

The minutes of 29 March 2023 were received, approved, and will be signed by the Chairman.

The minutes of the meeting of the Committee held on 29 March 2023 were agreed.

RESOLVED:

The minutes of 29 March 2023 were received, approved, and will be signed by the Chairman.

To:

-        approve the WPP objectives within the WPP Business Plan 2023/24 to 2025/26,

-        approve the updated Delegation of Functions to Officers to recognise WPP’s role in relation to investments within the pool and that Officer delegations are limited to investments outside of WPP, and to change the delegation for Voluntary Scheme Pays Policy to be consistent with other administration policies.

-        provide Committee members with an update on other pooling matters, and

-        receive a presentation from the WPP Operator and Investment Management Solution Provider.

a)    The Committee approved the WPP objectives within the WPP Business Plan 2023/24 to 2025/26.

b)    The Committee approved the updated Delegation of Functions to Officers to recognise WPP’s role in relation to investments within the pool and that Officer delegations are limited to investments outside of WPP, and to change the delegation for Voluntary Scheme Pays Policy to be consistent with other administration policies.

c)    The Committee noted the update on other pooling matters.

d)      The Committee received and noted the presentation from the WPP Operator and Investment Management Solution Provider.  

Mrs Fielder introduced this item with a brief overview of the report, highlighting:

-       An additional objective for the WPP business plan had been requested by the scheme member observer at JGC on 29 March, which the Fund was now being asked to approve.

-       The Fund was also being asked to approve changes to the Scheme of Delegations to Officers to reflect that the Fund has allocators through WPP, and that WPP now make the majority of investment decisions on the Fund’s behalf. This includes private markets decisions that were previously delegated to the Head of the Fund. There was also an amendment regarding the administration policy.

-       The WPP operator procurement process is ongoing and approval of the scoring criteria for this is a reserved matter for constituent authorities, so will be brought to Committee in August, after discussion at JGC in July.

            Mr Zealander presented an update from Link Fund Solutions to the Committee, covering:

-       The role of Link in relation to WPP, Russell Investments and Northern Trust.

-       An update on Waystone’s acquisition of Link which was on track to go live on 1 October.

-       Link’s governance structure and oversight core principles, which will remain in place throughout the acquisition process.

-       The launch of the WPP Sustainable Active Equity Fund on 20 June 2023.

            Mrs McWilliam asked when the Fund will hear more about the sale of Link Fund Solutions, and given the expectation that Pension Funds will be unaffected by the transition of ownership, she asked whether any work had been done to ensure that the WPP Business Plan can still be delivered in line with both the timescales and the needs of the Funds. Mr Zealander explained that WPP, Link and Waystone’s solicitors were currently working on the novation of contracts and an agreement was expected to be reached within the week. Following this it was expected that the constituent authorities will be asked to sign this off within the next fortnight. He also clarified that Link had been assured that the WPP roadmap would be unaffected, and there will be no fundamental changes to the business or senior management team within the first 12 months, to avoid impact on systems and controls.

            The Chair then handed over to Mr Quinn to present the update from Russell Investments.

            Mr Quinn explained that the launch of the WPP Sustainable Active Equity Fund which followed 18 months of work with the WPP and subgroups, meant the WPP now had ten sub-funds available across the liquid asset classes. The WPP were also in the process of building its private markets programme.

            He gave an overview of the sub-funds the Fund invests in, which covered:

-       WPP Global Opportunities Equity Fund, from which Clwyd will be transferring all assets across to the WPP Sustainable Active Equity Fund. He provided details of the sub-fund’s performance since inception, and how varied investment styles were incorporated into the construction of this portfolio. A similar approach had been used  ...  view the full minutes text for item 57.

The Committee considered and noted the update.

            Ms Murray of Aon talked the Committee through a summary of equality, diversity and inclusion (EDI) guidance recently issued by the regulator. She explained some key points of the guidance and TPR’s view that harnessing diverse views can help scheme managers in their decision-making and understanding and mitigating risk. The guidance recommends that schemes should adopt an EDI policy, and while some of the considerations in the guidance have already been addressed within the new Communications Strategy, Ms Murray confirmed that such a policy will be brought to a future Committee meeting.

            Mr Hibbert commented that he had not read the full guidance, and asked whether the Committee and Board are expected to reflect the membership, and what the regulator expects them to make progress towards. Ms Murray explained that while the regulator’s guidance is high level and does not give specific objectives, it does mention that a scheme with a high proportion of young, active members should have the same demographic represented among the trustee board. She noted that this needs to be balanced with practicality of implementing this considering how Committee appointments are made.

            Mr Hibbert noted where the guidance suggests fixed term appointments for scheme member representatives to ensure diversity of representation, that it takes a long time to train for the role appropriately. Mr Hibbert also noted that he has previously criticised WPP who have a two-year fixed term for non-voting scheme member representatives at JGC, and would have similar concerns if a time restriction applied to the scheme member representative on the Committee, particularly where those limitations do not apply to other Committee members. He also noted the need to consider that there may be a significant body of work behind the appointment process in order for the nominating bodies to attract the diversity of people needed to meet EDI aims. Ms Murray agreed that from a governance perspective continuity is a key concern for boards and committees, and particularly around training and commitment. The overall governance objective is to ensure appropriate decisions are made by those with the right knowledge and skills, and while EDI should play a role in this, it needs to be balanced with other factors such as continuity, for example having fixed term appointments staggered to avoid appointing several new members at the same time.

            Mrs McWilliam took Committee through the other key points in the report, including:

-       An update on the Pension Board membership. She expressed her gratitude for the time and commitment of both the Board’s employee representatives, Mr Steve Jackson who had agreed to continue in his role for a further two years, and Mr Steve Gadd who would be leaving the Board. Work is ongoing to fill the new vacancy in the Board.

-       The new format of the Annual Joint Consultative Meeting (AJCM) consisting of a set of video recordings and a drop-in session for one-to-one discussions for employer and employee representatives to engage on 7 December.

-       The training needs analysis which is  ...  view the full minutes text for item 58.

The Chair asked for any comments or questions relating to this item of the agenda, of which there were none covered in private.

LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT 1985 – TO CONSIDER THE EXCLUSION OF THE PRESS AND PUBLIC

RESOLVED

That the press and public be excluded for the following item by virtue of exempt information under Paragraph(s) 18 of Part 4 of Schedule 12A of the Local Government Act 1972 (as amended).

The Chair asked for any comments or questions relating to this item of the agenda, of which there were none covered in private.

The Committee considered and noted the update on administration and communication matters.

Mrs K Williams took the Committee through the administration and communications report, providing updates on:

-       The McCloud remedy including the McCloud working group, and the open DLUHC consultation.

-       The delivery of the National Pensions Dashboard which has been delayed. The impact of delays on staging and onboarding dates is unclear, so the Fund is continuing preparations as communicated to the Committee at past meetings.

-       Workforce, including changing the newly appointed project team Principal Pensions Officer from a job share to a single role due to resourcing issues, as well as backfilling new vacancies and the current recruitment drive.

-       Results of the member satisfaction survey and the employee focus groups for which there were 73 volunteers, and the employer survey.

Mr Hibbert asked how the trade union challenge to the cost of McCloud being met by employers and members had progressed. Mrs Williams did not have an update to hand but will look into this and provide an update to Committee.

Cllr Wedlake asked if it is possible to compare the survey responses to previous surveys, and Mrs Williams confirmed that with the exception of last year’s results, previous survey results have been published in the corresponding annual reports.

RESOLVED:

The Committee considered and noted the update on administration and communication matters.

The Committee noted the update.

Mr Hughes presented this item, highlighting:

-       Transition of around £130m of assets from the global opportunities fund with an additional £65m of cash to the sustainable global active equity sub-fund. The allocation to this fund will be increased to the target allocation of 15% of total assets (c.£330m).

-       Climate reporting progress, including TCFD and UK stewardship code.

-       The actuarial valuation report and certificate were signed on 30 March with employer contributions effective from 1 April.

-       The draft ISS will be taken to August committee for approval following the training day on 2 August.

-       An update on the various private market allocations.

-       Delegations and cashflow forecasting.

            Mr Hibbert asked if there was any update regarding Robeco voting with management to explore new oil fields rather than extracting from existing fields, as Mrs Fielder had agreed to discuss this with them. Mrs Fielder explained that there was no update but that the Fund has several questions to ask of Robeco at the RI subgroup meetings. She also noted that WPP will be hosting a training session in the coming months on voting and engagement, which Robeco will be involved with.

            Cllr Wedlake asked for clarification on whether Robeco close their engagements when targets are set, rather than when targets being monitored are reached. Mrs Fielder explained that Robeco’s engagements are updated throughout a three-year cycle. Robeco’s role is to provide engagement information, and at the end of the three-year cycle, if progress is not made, the WPP is responsible for making a decision on further action. The WPP RI Working Group is currently working with Hymans to produce an escalation policy for failed engagements, which both Mrs Fielder and Mr Latham have sought after for some time.

RESOLVED:

The Committee noted the update.

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.

The Committee considered and noted the contents of the report.

Mr Middleman opened with an overview of the Fund’s financial health and status of triggers in the framework. The framework and flightpath was providing funding stability and was performing well under volatile market conditions. Whilst the absolute performance figures of the flightpath were negative, this was offset somewhat by the changing liabilities, meaning despite ongoing and upcoming challenges, the framework was functioning as intended and has remained resilient despite the challenging market conditions.

The Pensions Regulator (TPR) had issued guidance around LDI and collateral requirements, and the Fund was well within these tolerances and can withstand significant market movements.

While the funding position remains healthy, overall monitoring will continue, particularly with persistent inflation which directly impacts the pensions liability risk.   This includes monitoring of collateral levels in conjunction with Insight as the LDI manager.

With reference to paragraph 1.05, Mr Hibbert requested more detail on where the Fund would look for more liquidity following divestment from the existing collateral waterfall. Mr Turner explained that there is potential scope to move assets from the TAA portfolio if needed. He noted that the Fund’s minimum target for yield headroom is 3% and the Fund is currently approaching 6%, leaving a buffer, but liquidity is available to realise if needed. A thorough cashflow analysis will be discussed over the coming months to inform future planning for overall liquidity. Mr Hibbert asked if this decision making will integrate ESG issues, and Mr Turner explained that while cashflow tends not to be focussed on ESG issues, ESG considerations are integrated into all of Mercer’s investment thinking and advice to the Fund.

Mr Middleman acknowledged Mr Hibbert’s concerns for ESG relating to cash management. He explained that the ESG element of the flightpath is a core component and is being considered in how the hedges are supported taking into account all ESG objectives.  This will be a decision for the Committee in due course on how it is delivered in the same way as the wider discussions on Responsible Investment. However the Fund will need to be mindful of the implementation side as implementation needs to be appropriate and practical to achieve the overall objectives. 

RESOLVED:

The Committee considered and noted the contents of the report.

The Chair asked the Committee to note the following future Committee meeting dates:

-       Wednesday 30 August 2023

-       Wednesday 29 November 2023

-       Wednesday 28 February 2024

-       Wednesday 20 March 2024

-       Wednesday 19 June 2024

RESOLVED:

The Committee noted the upcoming Committee dates.

The Chairman thanked everyone for their attendance and participation. The next formal Committee meeting is on 30 August 2023. The Chair also took the opportunity to highlight the upcoming essential training session on Responsible Investment on 2 August, which will be held in person at County Hall. Analysis will be circulated ahead of the training.                                          

The meeting finished at 11:45am.

……………………………………

Chairman