Agenda, decisions and minutes

To receive any Declarations and advise Members accordingly.

There were no declarations of interest.

There were no declarations of interest.

To confirm as a correct record the minutes of the last meeting held on 10 November 2021.

The minutes of 10 November 2021 were received, approved and signed by the Chairman.

            On page 7, Mr Latham noted the recommendation regarding the trainee Fund accountant on item 165. He explained the aim of the recommendation was to appoint a trainee fund accountant before the current Fund Accountant retired which was hoped to still be some time away. However, since the last Committee meeting the current Fund Accountant had decided to leave the Fund, which creates a further resourcing issue and governance risk.  Consideration will need to be given to how this gap in resource will be managed during the critical period over the summer when the Fund accounts are prepared and plans will be reported back to Committee in due course. The Chairman requested a letter from the Committee is sent to the departing Fund Accountant, Mr Vaughan, to thank him for his exceptional services to the Fund.

            Mr Hibbert queried whether there was any movement on the selection process of the scheme member representative. The Chairman confirmed he was expecting to attend interviews later that week.

            The minutes of the meeting of the Committee held on 10 November 2021 were agreed.

RESOLVED:

The minutes of 10 November 2021 were received, approved and signed by the Chairman.

The Committee considered and noted the update.

Mr Harkin announced that Mr Buckland had left Mercer to work for another LGPS Fund. Mr Harkin introduced Mr Dickson who had already been working on the Fund for a period of time.

Page 22 outlined the market update over Q4 2021 and the positive quarter for most growth assets, although he noted that emerging markets equities were down.

Mr Harkin added that the initial scare over the latest COVID-19 variant quickly dissipated as government and central banks were quick to respond. These actions had supported asset price rises over 2021. He noted that since the turn of the year volatility in markets had increased significantly and that geopolitical risk had contributed to this.

            Currently, economies around the world were seeing significant levels of inflation, in particular the US and UK. Both the US Federal Reserve and the Bank of England had started to raise short-term interest rates in response.  He believed that interest rates rises may be quicker than had previously anticipated but Mercer and the Fund would keep an ongoing dialogue on this matter.

            As highlighted on page 43, Mr Dickson confirmed that the Fund performance was 4.7% over Q4 2021, which exceeded the benchmark of 4.2%. The 3-year figure reflected the performance from before the pandemic, throughout the pandemic and to current date. This figure was 11.9%p.a., which was also above the benchmark of 10.4%. The two actuarial discount rate targets of 3.8% and 4.3% identified the return the Fund require to make in order to stand still, and therefore the 3-year figure of 11.9% was significantly higher than the two actuarial targets and this outperformance had contributed to the improvement in funding level.

Mr Dickson noted from page 47 that the WPP Global and ESG Equity assets performed well and other areas of positive returns were from Total Tactical Allocation. Private Markets also produced strong returns of 22.4% over the year and the Cash and Risk Management Framework returned 33.6% over the same period.

The Chairman queried the forecast for future interest rates rises in USA. Mr Harkin noted that the market was expecting 4 to 5 rate rises from the US Federal reserve over the year, and that due to this, these had already been priced in by markets.

RESOLVED:

The Committee considered and noted the update.

(a)       The Committee noted the Funding, Flightpath and Risk Management Framework update; and

(b)       The Committee agreed to the 110% funding level trigger and agreed the funding level de-risking trigger process.

As outlined in the report, Mr Middleman confirmed that at the end of December, the Fund had a funding level of 102%, which was still a strong position. The end of December funding position was lower than previously due mainly to structural factors such as membership experience and the McCloud remedy (combined these equate to roughly a 3% reduction in funding level). 

            Mr Middleman believed the biggest risk for the Fund was the persistency of the current relatively high inflation as the Fund’s liabilities were directly linked to inflation so higher inflation than previously expected would mean an increase in costs, unless expected asset returns increase to compensate. He confirmed this would be a matter for ongoing consideration at future Committees as the Fund reaches the actuarial valuation date on 31 March 2022. Inflation risk was the most significant risk for the Fund with employer budgets and contributions being a key debating point.

An adjustment to the collateral limits was noted in paragraph 1.11 along with the plan to adjust the level of collateral held in the higher yielding assets in the collateral pool pending its investment in Private Markets.

Mr Latham reminded the Committee of the discussions at previous meetings about putting in place a funding level trigger of 110%. Since that discussion, consideration has been given to the governance around the process to change the strategy if the trigger was breached.  Mr Latham explained the report proposed the Committee agree to formalising the funding level trigger of 110% and also included a proposed process, which set out the timescale and milestones should this trigger be hit. This proposed process included corresponding with the Committee setting out the proposed changes for comment. Ultimately, a special Committee meeting could be called to debate the changes if any concerns about de-risking are raised in feedback from Committee.

The Committee approved the 110% funding level trigger and agreed the funding level de-risking trigger governance process.

RESOLVED:

(a)       The Committee noted the Funding, Flightpath and Risk Management Framework update; and

(b)       The Committee agreed to the 110% funding level trigger and agreed the funding level de-risking trigger process.

The Committee considered, noted and approved the revised Investment Strategy Statement.

At the previous Committee meeting in November 2021, members agreed to the update of the Investment Strategy Statement (“ISS”) to reflect the commitment to setting decarbonisation targets for the Fund. Mrs Fielder said that a more detailed review of the ISS would take place later in the year. As required and agreed at the last Committee meeting, the Fund agreed to consult with employers on this and Mrs Fielder confirmed no negative responses had been received as a result of the consultation. Page 100 and 102 of the proposed Investment Strategy Statement highlighted the main areas updated.

            Mr Hibbert expressed his view that although he agreed with the content of the revised ISS, he was unable to agree the recommendation. This was because he believed that there was insufficient information from the Wales Pension Partnership (“WPP”) to evidence the Fund’s aspirations to be 'Responsible Investors', 'Impact Investors' or effective 'Stewards' of all the Fund’s monies due to the failure of WPP to provide a report on their stock lending activities to the Committee. Mrs Fielder confirmed that she would raise this matter at the next WPP Responsible Investment (“RI”) sub-group.

            In regards to the Stock Lending Agreement, Mr Hibbert accepted that 5% of stock is retained for voting but wished to understand the impact of stock lending on the value of the stock over the period of lending. He also wanted to understand the time taken for the stock to regain the value prior to any lending. This would help him determine whether the lending fees paid to the Fund actually provide the added value expected.

            Mr Hibbert asked the Committee to formally request the stock lending activity to date from WPP and therefore he disagreed to the recommendation.

Additionally, Mr Hibbert noted a grammatical error on the second paragraph on page 93 which Mrs Fielder confirmed would be corrected in the final published version.

RESOLVED:

The Committee considered, noted and approved the revised Investment Strategy Statement.

(a)       The Committee considered and noted the update; and

(b)       The Committee received the presentation from the WPP Operator and Investment Manager.

At the last Joint Governance Committee (“JGC”), it was agreed to extend the contract with Link’s Fund Solutions’ Operator to December 2024. Mr Latham added that progress was made regarding the appointment of the co-opted member representative to the JGC and this should be in place by the next JGC in June 2022. 

Mr Latham explained that the WPP business plan would not be published in time for the March 2022 Committee but would be available at the June 2022 Committee. In addition, the Government are due to release a consultation on guidance on LGPS asset pooling in summer 2022.

Mrs Fielder confirmed that presentations from short listed candidates for the appointment of Private Market “allocators” were to take place in Cardiff the following week. The role of the allocators would be to select the “best in class” private market managers across separate asset classes. The tender for the appointment of a Private Equity Allocator was anticipated to start in April 2022.

Mr Gough introduced himself as senior relationship manager for Link Fund Solutions and ran through the presentation. He informed the Committee that Link Fund Solutions were expected to be sold to a third party called Dye & Durham but believed this would have no day-to-day impact on the WPP. He noted that the entity would have a clear plan and he was looking forward to what was to come.

Mrs McWilliam asked whether this was a risk for the Fund. Mr Gough believed that it was not a major risk but would keep the Committee up to date as this matter progresses. Mr Latham confirmed that the Officer Working Group (“OWP”) and JGC are monitoring any risk associated with this.

            Mr Gough presented the structure of the WPP investments from page 123 and the current investments for the Fund within the WPP on page 124.  Overall, the WPP had total assets under management of c£10.5 billion as shown on page 125.

Mr Quinn introduced himself as associate director and Mr Pearce as the senior portfolio manager at Russell Investments.

Mr Pearce noted the following key points on this item of the agenda:

-       Russell Investment have research analysts around the world and their manager research pulls together investment managers and regional specialists.

-       Page 128 outlined the market performance trends since the inception of WPP’s portfolios. The dotted black line in the middle of the graph was the WPP Global Opportunity Equity Fund. The orange line on the graph represented growth. Mr Pearce said that particular styles of investing often have very big outperformance but over time there will be mean reversion i.e. where growth will come back towards the other styles.

-       A breakdown of the WPP Global Opportunities Equity Fund was presented on page 129. Mr Pearce added that a new manager in Japan was introduced in December 2021 called Nissay which replaced NWQ.  He confirmed that they would continue to exit NWQ carefully until all exposure in Japan is with the other specialist manager.

-       Last  ...  view the full minutes text for item 40.

The Committee considered and noted the update.

Mrs Fielder introduced this paper and explained that since the Committee agenda pack was distributed, the DLUHC had published the Levelling Up Whitepaper, which outlined proposed expectations for LGPS Funds to have up to 5% of assets allocated to projects, which support local areas. Mrs Fielder explained that this was not new, as the Clwyd Pension Fund had already been supporting local areas for years with over £132 million worth of commitments agreed, which is already over the 5% target. Unfortunately, Mrs Fielder confirmed it was possible that the steps the Fund had previously taken would not be included in this 5% target but we need to wait for the consultation to understand how this will need to be implemented.

            In paragraph 1.05, Mrs Fielder confirmed that the pressure group had moved on from fossil fuels and was now looking at livestock companies.

            As alluded to at the last Committee, the Fund officers and advisers had been investigating more private market opportunities and this was well underway with more commitments outlined in the table in paragraph 1.12. This included Capital Dynamics and more details on this were explained in the next agenda item.

            Regarding the exposure to industrial livestock companies in paragraph 1.05, Councillor Bateman explained he had received correspondence from a constituent who highlighted concerns about this. He asked whether Mrs Fielder was happy to respond to the letter he had received. Mrs Fielder confirmed she would  respond to the request.

RESOLVED:

The Committee considered and noted the update.

That the press and public be excluded for the remainder of the meeting for the following items by virtue of exempt information under paragraph(s) 14 of Part 4 of Schedule 12A of the Local Government Act 1972 (as amended).

RESOLVED:

That the press and public be excluded for the remainder of the meeting for the following items by virtue of exempt information under paragraph(s) 14 of Part 4 of Schedule 12A of the Local Government Act 1972 (as amended).

The Committee received a report and presentation from Capital Dynamics on the implementation of a Separate Managed Account for the Clwyd Pension Fund to invest in direct clean energy projects in Wales.

This item of the agenda was presented and discussed.

RESOLVED:

The Committee received a report and presentation from Capital Dynamics on the implementation of a Separate Managed Account for the Clwyd Pension Fund to invest in direct clean energy projects in Wales.