Agenda item

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 in the construction of the sustainable sub-fund in order to deliver excess returns over time while also considering sustainability.

-       WPP Emerging Markets Equity (EM) Fund, including the benefits of investing in emerging markets, and a breakdown of sector and regional allocations. He explained the purpose of the EM sub-fund. Noting that a dedicated EM sub-fund is typically able to provide access to smaller and medium sized companies when compared to global equity sub-funds, and highlighted an example of how this is achieved through Bin Yuan, a specialist manager based in China with a strong focus on sustainability. He also explained the EM sub-fund’s decarbonisation aims and strategy, and a summary of the sub-fund’s performance to date.

            Mr Hibbert commented that an important aspect of emerging markets is having people ‘on the ground’ in the factories, able to monitor ethical practices to ensure that nothing is going wrong in order to drive profits. He asked how much Bin Yuan can ensure this. Mr Quinn agreed and explained that Bin Yuan’s team is entirely based in China allowing them to engage with companies.

            Mr Hibbert commented that the Fund does not have a physical ability to verify that companies are operating responsibly, and asked how this is scrutinised. Mr Quinn agreed that this is the key criticism of global investment managers, and highlighted this as the reason for adopting Bin Yuan as a dedicated specialist able to travel, visit factories and meet with suppliers, and who have a sustainability framework well ahead of other managers in China as well as most managers globally in EM, including its commitment to net zero.

            Mr Hibbert raised concerns about geopolitical instability around China and Taiwan, and the wider emerging markets regions. Mr Quinn noted that many managers are scaling back on investments that are geopolitically exposed, but that the smaller domestic companies are less exposed to this instability compared to multinational investments. He noted that managers are acknowledging the need to reach an amicable solution particularly between China and Taiwan due to the potential impact on EM and the wider global markets.

            Mr Quinn continued to go through the sub-funds, highlighting:

-       The Sustainable Active Equity Sub-fund, including how Environmental, Social and Governance (ESG) investing is considered and incorporated by different products, Russell’s criteria for sustainable products, and details of the sub-fund’s net-zero goal and interim steps.

-       Active ownership including proxy voting, engagement and the roles of Robeco, Russell and the underlying managers. Russell will be monitoring and reporting their own engagements and those of the underlying managers for all the WPP sub-funds, and will also provide ESG reporting for the sustainable sub-fund.

-       The WPP Multi-Asset Credit Fund (MAC), including how MAC adopts managers specialising in the various underlying fixed income asset classes, and its performance in relation to its goals and the impact of rising interest rates and widening credit spread over 2022.

-       Key areas of focus for the future based on the WPP’s recent sustainability preferences, including investigating more sustainable fixed income, and the exclusion of companies that violate UN Global Compact Principles.

-       Details of the WPP Global Private Credit Fund which was launched in April 2023 and which the Fund will be committing to.

            Mr Hibbert asked whether the WPP Sustainable Active Equity Fund falls outside of the WPP stock lending policy. Mrs Fielder noted that the decision for stock lending on the sustainable sub-fund has not been decided yet, and the Fund will be pushing for this not to be included in the stock lending. Mr Zealander confirmed that this is not currently included and will not be unless all authorities approve that decision.

            With reference to page 73, Cllr Wedlake asked regarding MAC and given volatility in the markets, which events are likely to push the Fund up along credit rate risk or up interest risk. Secondly, he commented with reference to page 70 stating “less than 40% of assets to be net zero or aligned to net zero” that there is a difference between net zero and alignment to net zero, and asked why there are not targets for both and what is the most likely outcome given current trends of the proportion of assets being net zero compared to those aligned to net zero.

            Mr Quinn explained regarding the second question that companies not currently aligned may seek alignment over time, and that there is a constant monitoring of those companies to scrutinize those who are not aligning. He also noted that the data only reflects 50% of the holdings, and dynamics will change as scope 3 emissions data becomes available. There is a need for the sub-funds to grow with the data and frameworks, to seek that alignment over time.

            With respect to Cllr Wedlake’s first question, Mr Quinn explained that the high yield credit has the most exposure to credit markets, but that it is difficult to look at it in isolation. Looking at securitised credit, it has less exposure to credit markets but does have exposure to ‘pockets’ and has its largest exposure to US consumers’ loans – so if delinquencies rise due to recession, these under-perform while the wider credit markets may not be affected. In this sense, diversity is the point of MAC as although it typically performs at two-thirds of the return of equity, it does so with lower volatility, introduces diversification to the portfolio and helps the overall risk adjusted returns. A future credit event would impact MAC less dramatically than equity markets, giving investors a level of insulation from market events.

            Cllr Wedlake noted that securitised credit is most likely to move against the Fund currently given global conditions, but there is a reasonable expectation that the remainder of the sub-fund is still likely to outperform equities and manage risk. Mr Quinn agreed with this summary.

            Mr Hibbert asked regarding the sustainable development goals (SDG), if it is possible to provide a profile of how the fund is aligned with goals, to gauge the Fund’s impact and where it is directed. Mr Quinn confirmed that this would be provided once the sub-fund is launched. He commented that Russell will use an independent provider who have built a methodology to appraise companies’ alignment with SDGs. This data will be used for reporting as well as portfolio management. Mr Dickson clarified that this SDG reporting will only be provided for the WPP Sustainable Active Equity Fund and is not currently available for the other sub-funds.

RESOLVED:

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.