Agenda item

(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Mr Latham explained that the WPP business plan would not be published in time for the March 2022 Committee but would be available at the June 2022 Committee.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 year reflected a fantastic market return in the equity markets. As outlined on page 130, the bold bar showed that the market performance sector return was just under c20%.

-       The table at the top of page 131 outlined the performance to 31 December 2021, and the WPP Global Opportunities Equity Fund was behind benchmark for Q4 2021. Nonetheless, over the long-term it was ahead of the benchmark as outlined in the bottom table on page 131.

-       Page 132 showed the performance of the managers against their specific benchmarks at the end of January 2022 (indicated in colours green and red). Mr Pearce explained that if Russell Investments are doing their job well over time by adding value all would be green. The range of colours in the chart showed the benefits of diversification as different styles add value at different times in the economic cycle. 

-       From the sector chart on page 133, the financials were overweight whereas in terms of regions, the US markets remain expensive so the WPP Global Opportunities Equity Fund was underweight the US market and therefore overweight to other regions, primarily emerging markets and Europe.

-       In terms of manager research, all research analysts are spending at least a portion of their time explicitly focusing on ESG.

-       Given the Clwyd Pension Fund’s public commitment to have net-zero carbon emissions by 2045, the Russell funds have also signed up to a net-zero carbon emissions target of 2050 and are therefore putting in place a framework for transparency and reporting on the progress of the solutions against net-zero targets.

-       Page 138 outlined the exposure to carbon against the benchmark. Mr Pearce confirmed there was a specialist team that checked that the WPP funds continue to have significant less exposure to carbon going forward.

Mr Quinn noted the WPP Emerging Market Equity Sub-fund launch last year, which was dedicated to Emerging Markets only. He added the following key points:

-       A China specialist was added to this sub-fund given the increasing weight in the market index and he believed there was a good opportunity in China in terms of growth and the domestic market.

-       Page 142 displayed the latest position of the sub-fund from the end of October 2021 and the six managers with different styles including the China specialist. Despite the small weight to the China specialist, Mr Quinn was comfortable with the weight and believed it could grow overtime.

-       An enhanced portfolio implementation (“EPI”) and decarbonisation summary was reflected on page 143 and proved this was working successfully for the WPP.

-       Given the desire to have a sub-fund that achieved more than an investment return i.e. to be aligned with climate change targets, a new sub-fund was under construction as outlined on page 145. Mr Quinn said that a paper with more information would follow on this.

Mr Hibbert stated that he continued to be impressed with the operation of Russell investments and seeing the theory actually work in practice.

Regarding Russell Investments’ net-zero target of 2050, Mrs Fielder questioned whether there were clients with different targets within the WPP and how the company dealt with the different views. Mr Pearce said that he was currently analysing each client globally regarding what is in scope in terms of net-zero managers. He believed that the interim targets (net-zero by 2025 and 2030) were more important to focus on primarily and thereafter the overall target would come together in time.

            In regards to the FRC Stewardship Code, Mr Dickson noticed that Russell Investments were not listed as a signatory to the Code and he asked what steps would be taken to achieve this. Mr Pearce explained that the Code had changed dramatically recently and Russell was working through the requirements.  News would follow on this in the next few months.

            As investment managers within a portfolio structure have a range of different styles, Mr Harkin asked how Russell Investments deals with different manager views. He also asked whether they had the ability to suggest their own views given the likelihood of a strong dislocation in interest rates in the future, such as is the case in the US currently. Mr Pearce said that they have a team of specialists who work full-time as economists, analysing the market daily and in particular considering interest rates and unemployment. He added that one of their team members previously worked for the US Federal Reserve so is an expert on this matter. Russell’s current view was that high inflationary numbers, such as 5% and above, will subside as the year goes on. In terms of the portfolio, given the continued levels of above average growth, inflation will therefore subside.

            On page 147, Mr Quinn noted the Multi Asset Credit (“MAC”) Fund launched in August 2020 and explained it had multiple underlying asset classes to it. BlueBay was a multi-sector specialist and had access to all the specialist managers.

            Since inception, the performance of the sub-fund was within expectations i.e. a return of 5.47% against a net target of 4.11%, but over Q4 2021, the MAC Fund delivered a flat return, which was behind the target.

            The performance of the MAC Fund over time was reflected on the graph on page 149. The orange dotted represented its target, which was cash + 4% whereas the black dotted lines reflected Russell Investments expectations through volatility. In addition, the blue line showed the expectations of the performance of the MAC Fund. From this, it could be seen that the MAC Fund had a good start since inception but more recently, the orange trend line was moving towards where it was expected to be.

            Mr Quinn noted the review of the MAC Fund outlined on page 150. He confirmed that fund manager Man GLG and the emerging market debt manager had struggled slightly as an asset class given the concerns in China. Other emerging market countries also struggled such as Turkey and Russia. Mr Quinn said that he would keep a close eye on this manager to ensure they remained appropriate for the MAC Fund.

            Mrs Fielder asked whether strategies within the MAC Fund could be adjusted as quickly and easily as it is to change investment managers. In terms of strategies, Mr Quinn said that they are broadly based on what you would expect. As loans struggled in March 2020, high yield also struggled. Despite this, all classes perform better at different times for different reasons, which is why he believed it was important to have different exposure to all of them. In regards to new strategies, the portfolio manager was looking into how to manage the MAC Fund duration and sensitivity to interest rates and discussions would be held on this in the coming months.

RESOLVED:

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

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