Agenda item

The Committee noted and considered the contents of the report.

The Chairman highlighted from the report that for the first time since Flintshire County Council became the administering authority, the Fund exceeded 100% funding level and was at 102% as per the report.

            Mr Latham was delighted to report the fully funded position and confirmed that the Fund had grown from £300 million in 1996 to £2.1 billion now.  He noted to the Committee that the history of the funding position was in the later investment and funding update item from Mrs Fielder.

He stated the following key points regarding the Fund’s road to a fully funded position:

-       He believed a key reason for the success was the management of the Fund via the flightpath and risk management framework that is operating as expected.

-       This has been achieved by the Fund through a diversified and lower risk portfolio.

-       The level of hedging for inflation and interest rates has benefited the Fund positively.

-       The equity protection provides an insurance, albeit this hasn't actually been needed given markets have continued to rise. 

-       By hedging the currency risk, the Fund gained £15.8 million since inception of this strategy.

-       Another positive was that a further £100 million of collateral can be released whilst maintaining the same overall risk/return. This additional funding could be used for commitments to sustainable private markets assets in the future..

            Mr Middleman noted that, as the funding level is over 100%, it had been agreed that consideration would be given to whether risk should be reduced further and, if so, what would be the implications for returns and ultimately the level and stability of employer contribution requirements.   Mr Middleman explained the next steps in terms of considering any actions that should be taken and this will be discussed at the next FRMG meeting. On page 31, item 1.07 outlined potential next steps and actions for consideration which included doing nothing, reducing the equity exposure and/or  increasing the hedging levels – in particular for inflation given the current uncertainty. 

            Mr Middleman confirmed that the funding level had continued to improve and was currently estimated to be around 103%.

            Mr Everett asked how typical the Fund’s financial position was against other LGPS Funds and other pension funds generally. Mr Middleman confirmed that this was linked to the strategy for each Fund.  For example, other pension funds who had a higher equity allocation, would have seen a bigger improvement in funding position and vice versa. However, the Fund will have more stability compared to other pension funds, due to the protections in place e.g. the level of hedging and equity protection strategy.  There is therefore likely to be less “boom” and “bust” type scenarios.

            Mr Everett believed that if the Fund remained in a fully funded position at the next triennial valuation, considerations would need to be made around whether employers' contributions could be contained or reduced given fiscal challenges for employers in balancing their budgets. Mr Middleman agreed that this is a consideration and added that there needs to be a discussion with employers about the level of any reduction, given that the more contributions are reduced, the more likely they will drift upwards in future especially if the surplus is being “run off”.  This would be a key consideration in light of the balance between employer budgets in the short term and longer-term stability of contributions.  Mr Middleman expected this discussion to take place with the major councils as part of the interim funding review later this year.

            Mr Hibbert queried whether the Fund could reduce their exposure to fossil fuel intensive equities to help the Fund achieve the target of net zero commitment by 2050. Mr Middleman noted that the roadmap to a net zero commitment was central within the flightpath strategy so any changes would certainly have these objectives in mind. For example, the social and environmental impact will be central to where the c£100 million of collateral from the strategy is invested.

Cllr Williams asked whether the Fund should reduce their investments in fossil fuels given that the Fund exceeded a fully funded position as they could take the “hit” on selling them more easily. Mr Harkin said that this was going to be picked up as part of the next item on the agenda. He confirmed that the Fund did not have a great deal of exposure to fossil fuel intensive stocks but he believed that this should be one part of a holistic integration in achieving the net zero commitment.

Mr Harkin noted that the c£100 million of collateral from the flightpath strategy is a conservative estimate and has the potential to be utilised as part of the Private Market investments.

Cllr Bateman asked for clarification on the term FRMG. Mr Middleman confirmed that FRMG stood for the Funding and Risk Management Group and was set up as part of the Fund's governance structure. The group consists of Mr Middleman as Actuary, Nick Page as Risk consultant, Mr Harkin as Investment Consultant,  Mr Latham as Head of the Pension Fund and Mrs Fielder as Deputy Head of Fund. Mr Latham is required to sign off matters discussed at the FRMG under the agreed delegations from the Committee.

RESOLVED:

The Committee noted and considered the contents of the report.