Agenda item

(a)       The Committee noted and discussed the presentation from the WPP Operator and Investment Manager.

(b)       The Committee ratified the decision to invest in the Wales Pension Partnership Emerging Market Equity Fund.

(c)       The Committee agreed that the assets should be transitioned and delegate the specific timing to the Clwyd Fund officers on the OWG.

(d)       The Committee noted the WPP Annual Report.

Mr Gough, from Link Fund Solutions introduced himself to the Committee. He started the presentation by making a number of comments:          

-       Despite delays and complexities, Link Fund Solutions had launched 5 fixed income sub-funds in 2020.

-       The status of the Emerging Markets sub fund launch was on hold due to the requirements to be included in the prospectus, linked to the proposed decarbonisation approach. Link Fund Solutions had aimed for a launch in Q2 2021 however this may be delayed.

Mr Quinn from Russell introduced himself to the Committee and noted that since the Committee last met there has been no difference in terms of managers in the global opportunities sub-fund.

            Mr Quinn made the following key points:

-       Despite the market meltdown in Q1 2020, the performance of the global opportunities portfolio was positive in terms of investment returns. He added that since inception, excess returns were positive (c0.5% p.a.) but this is still a relatively short period.

-       The chart on slide 8 outlined the difference in growth versus value, with growth outperforming value.

Mr Harkin asked how the portfolio looked going forward following the change in the US administration, given the different policies that would be adopted. Mr Fitzpatrick from Russell introduced himself and responded by noting that it would depend on the final outcome of the US election. In terms of the senate situation, it was currently believed to be more split and that republicans would retain the senate situation with Biden as president. The senate controls tax cuts (which are good for the economy and market), which Trumps administration led, therefore he believed it is likely to stay in place. Overall, a positive result given the uncertainty.

Mr Fitzpatrick focused on the targets for the Multi Asset Credit Funds. Since inception, the performance was positive with an outperformance of 2.8% p.a. vs a 1.1% p.a. target. Events such as the US election and COVID-19 have been good for credit assets as they fed through in credit markets.

He stated that the target return is SONIA + 4% p.a. The assets under management are £636 million as at 31 October 2020 for WPP as a whole.  Mr Fitzpatrick outlined from how Russell planned on achieving the performance target.

Mr Fitzpatrick continued to note that credit markets continue to have a role to play as part of a wider asset allocation, given it is a medium expected level of return compared to equities. In terms of tactical management, Russell take a "risk on, risk off" approach.

Mr Mandich spoke about the Global Opportunities Fund in which the Clwyd Fund invested. It has been planned to target a 25% lower carbon footprint than the benchmark in early 2021. This will become possible through EPI (enhanced portfolio implementation) which has been designed to give the Fund Manager more control.

Mr Mandich then moved onto the topic of Emerging Markets. Mr Mandich noted that the Emerging Markets sub-fund is to be launched in the next 3 to 6 months. The aim of the sub-fund was to deliver stable excess returns whilst generating manager fee savings. On average across the WPP, the authorities pay c0.7% in manager fees, whereas this sub-fund is expected to charge only c0.4% (with an overall saving of more than £1 million). Mr Mandich also added that they will be hiring a China specialist to find opportunities on the Fund's behalf.

Mr Hibbert raised his concerns about whether the Fund will still be investing at a 4 degree increase and only targeting a 25% carbon reduction. Mr Mandich replied that they are working out how to achieve the required improvements in this area.

Presenters from Russell Investments and Link Fund Solutions left the meeting.

Mr Latham commented that previously when considering investments in WPP he had considered whether the proposal would produce better risk adjusted returns for the Clwyd Fund, and whether it would save fees. He felt that for the WPP Emerging Markets sub-fund it was a “win-win” with both considerations being met. He added that the potential for lower carbon emissions was another benefit.

He added that there were still ongoing discussions at WPP regarding having a scheme member representative.  However, to move this forward it will require full consensus by all participating administering authorities.  Mr Everett thanked the officers for continuing to raise the issue of the scheme member representative.  The Committee noted their hopes for consensus to be agreed and agreed that they would also support this being sourced from the Pension Boards as long as it was a scheme member representative.

The Committee agreed the recommendations.

RESOLVED:

(a)       The Committee noted and discussed the presentation from the WPP Operator and Investment Manager.

(b)       The Committee ratified the decision to invest in the Wales Pension Partnership Emerging Market Equity Fund.

(c)       The Committee agreed that the assets should be transitioned and delegate the specific timing to the Clwyd Fund officers on the OWG.

(d)       The Committee noted the WPP Annual Report.