Transcript

Good morning everybody and welcome to this meeting of the pension committee. Can I start by welcoming back Councillor Tutte, we're really pleased to see you in one piece. Much as we often disagree about things, it's really nice to see you, so welcome back. Thank you very much, Chair. I'm very pleased to be here. Good, good, good. This is, can I just remind everybody to turn their mobile phones to silent or turn them off, something which I have done myself because I will forget myself. This is a hybrid meeting and the committee is present in person but some of the officers will possibly join remotely to present their reports. Officers, it would be great if you could keep your report introduction short and members if you could keep your questions concise and the meeting is of course being webcast. Can you remember to turn your microphones on and off as and after you speak? And anybody joining by Teams, please raise your hands using the hand button. I know Ray, I see you there, I know you're very familiar with that process. So can I just check that we've actually started webcasting and it's working? Okay, that's good. And obviously everybody on Teams, can you mute your microphones when you're not speaking as well? Okay, so if we go to agenda item one, could the committee look at the minutes and are you happy to agree them? The minutes are checked for accuracy by ourselves or I check them for accuracy, the officers check them for accuracy, but is there anything that you see here which doesn't accord with your memory of the last meeting? Okay, no, there's nothing from my perspective. The only thing that I would note is that when we were talking about ABC, Sean, we were talking about the number of funds which were available to members and we kind of agreed that we would review whether the appropriate sort of choice was there. It sort of says that in the minutes but I just wanted to bring out that because it was one of the requests I made. Is that something that you recall? Yes, Chair, that's something that we have. So we're using an external ABC consultant to help us with looking at the default fund and where there's other offerings such as corporate bonds that we explicitly said was not part of the offering so we're going to have a look at that. So yes, agreed. It sort of says that or at least I could interpret it as saying that but it's a slightly bland sentence so I just wanted to make sure that the actual detail was understood. So thank you, thank you very much for that. Okay, so I have no apologies for absence, which is marvellous. And on that basis, I also have no urgent items but I think often Councillor Tutte, you like to disclose an interest. Have you got an interest that you want to disclose or anybody else got an interest they want to disclose? I'm trying to think which one I normally disclose. No, not any longer. I'm no longer a borough councillor so I don't need to disclose anything with regard to e-spawn. Oh, it's your activity in cyber activities, I think. Oh, sorry. Yeah, no, that's fine. I just couldn't remember. I'm grateful to you. If that were to come up, I'm director of cyber centre excellence. Okay, that's fantastic. Thank you very much. Now, I don't believe that we can really call over any of these reports and unless members disagree with me, I think we should go through the entire agenda. Is that agreed? Everybody's happy with that? Okay. Now, I move to agenda item five where you are asked to note the board draft minutes. Are there any specific issues arising from the board draft minutes that you would like to make observations on? No? Okay, so can we agree to note the board draft minutes? And with that, we move on to the governance report with Michael. Now, I think probably I'm going to do this before rather than after you speak but I just wanted to thank you. This is your last meeting for the committee and I just wanted to thank you very much for all the very considerable work you've done for us. We're going to very much miss you and clearly, I will be holding it against time and for the rest of my life. But no, we wish you great luck in your new endeavors. Thank you very much, Chair. Much appreciated. For the governance report, I don't intend to talk to what's written on the page. I do have a few updates of the positions however since the report was written. So, in relation to McLeod guidance and further guidance came out of the LGA at the start of this week. So, that is in the process of being looked at and will be incorporated in part of our review of the various letters and things going forward. So, that is in hand. And in relation to the letter from the Minister, it's now being clarified by the Scheme Advisory Board that we should be providing a response and that will go to the civil service. So, we'll be producing that going forward. So, that will be in the entry of the Pensions Minister, whoever that may be, once the results of the general election are known and the new government formed. In relation to the Pension Board membership, we have had one person was nominated to fill our vacancy as an employer representative. Myself and the Chair of the Pension Board has met with this person to go through the appropriate due diligence and a recommendation is being made to Governance Committee regarding that appointment. Governance Committee meets next week, I believe, where hopefully we'll get a decision on that appointment. That's sort of it for the updates on the material that's drafted. Then moving into, unless anyone's got any questions, it's then whether you've got anything on the draft policies that have been put before you. Thank you. Thank you very much, Michael. Any questions from the Committee? Councillor Redstone and then Councillor Taylor. Thank you very much and I will miss you definitely. Let me add my words to that. One very brief question on training. Have we estimated the total training time in terms of course attended and the perhaps papers reading for a new Pension Committee member? Over a year, say. Not for Pension Committee, however, for new Board members, we say in the first year you're likely to spend about 30 hours in training. I would imagine as we hold Committee to the same standard, we're looking at broadly the same sort of figure. Councillor Taylor. One of the points you point through about the Economic Activity of Public Bodies Bill, what would be the implications of that? I understand that it's not now going through, but I just don't understand what that could mean for us. So the bill was one of the things we were watching quite closely with a view to if it had come into practice, we would have looked to deliver training on later in the year. Fundamentally it was around how public bodies make decisions about matters and what things they can take into account. So effectively decisions would have had to, in line with the fiduciary duty really, so you couldn't take into account moral outrage about a foreign government doing a thing abroad, basically. Nor could you say but for this legislation we would have done XYZ. I think as an office group we weren't particularly concerned around the decision making within Committee and how that would fall foul of it. The challenge would more likely have been opening the door to potential legal action, again, about people who disagreed with decisions saying they thought it was taken for inappropriate purposes. However, that bill didn't survive the wash-up process. I think it's only in one of the manifestos, the general election, so it will wait and see to the extent to see whether it comes back later in the year. If there's signs of it, then officers will engage with that and definitely would look to provide training to Committee members, given that there are risks involved around being well-caught action, really. Any other questions? Okay. The Committee is recommended to approve the training policy, to approve the governance and compliance statement, and to approve the amended exit credit policy. Is there anybody who wants to raise any of these issues? Obviously, I haven't talked very much about them, but if you've read the documentation, that's fine. Okay. All right. On that basis, the Committee is going to approve those three items. If we could now move to Agenda Item 7, the Report of the Pension Board 2024. Sean, could you introduce the report? And Ray, I know you're going to be invited to comment at a meeting later on, after Sean has spoken. Thank you, Chair. So this is the annual report written by Ray as Chair of the Pension Board. The other Board members have had a chance to comment on its contents. This is to provide you an overview of who they are, what they're doing, what work they've been supporting, and training and oversight that they've been doing, and what they're looking to do over the next kind of 12 months to support you in administering the fund. So that's all I'm going to say as an overview. Ray, if you've got any specific comments about the content, I'll hand over to you. I've just got two things just to draw out. The first one is that we have been struggling with membership and occasionally attendance, so we're hoping that now we've got this new person as an employer rep coming on board, that they will have a bit longer tenure than some of the previous ones. So my first period as Chair, we had a very consistent committee for four years. This time, it's been a bit changeable in terms of people, and it is quite hard for people, as you as councillors and members of the committee will know, it's not an easy subject, and you need three or four meetings really to get your mind around it, and even though you have all the training opportunities. So that has been an issue and I think will be an issue over the next 12 months or so. And the second area really is has been around the issues we've had with data from one or two employers, which is well known and would probably be covered under the exempt title, but that that's been really our focus for the last couple of meetings. Thank you, Ray. Sean, do you want to continue or is there anything you want to draw out? So should we go to member questions? So could members do you have any questions regarding the pensionable chairs? I mean, I think, you know, from my perspective, as we've discussed, trying to create a level of continuity in the board is really important. And, you know, we have had quite a lot of turnover since even since the the governance review and and you know, the governance review that we did gosh, four years ago, was it four years in, it must be four years ago, sought to try to create a level of stability. But even with those sort of like those those attempts to to create more stability or create a structure for stability, we still have quite a lot of turnover. So it's not there's not a great deal we can do about it other than to, you know, to try and facilitate as many good people to apply as possible when a vacancy arises. And also, if we can use finance offices from authorities that at times can be very, very helpful, because obviously they're there for a longer period than politicians. And so institutional memory is really important in this context. Okay, on that basis, can the pension committee note the report? Okay, that's good. So now we move on to perhaps one of the media papers or the media areas for discussion, which is the pension admin report. And Paul, if I could ask you to introduce that report. Thank you, Chair. So yes, in the same sort of format as usual, and we normally start around the key performance indicators. I think ideally, we would normally aim for 95%, certainly something in the 90s. And we've seen numbers lower than that for some time. There has been an improvement since the last quarter. So we are now up to 82.5% from 79%. I think the key the key point here is that if you took out the aggregation quotations, which is item nine on the table in appendix one, you'll see that the performance, which would therefore be in line with the previous year, would actually be at 96%. 6.5%. So I think it's, it's a try is us trying to be transparent and try and show you everything warts and all. But if we were doing it on a like for like basis, from over 12 months ago, we would still be in the mid 90s at this point in time. So as you're aware, I'm trying to sort of move to a sort of new format. We've been sort of talking about this for a while. So I've put a couple of extra extra appendices in this time to give you a different view on things. So if you look at appendix B, what you've got there is you've got, although the key to the graph is not ideal, what you've actually got here is nearly five years worth of performance, which is the lines across the top. And you can see the more recent struggle in the blue and the purple lines. And you can see that the purple line is now starting to move back up again. And the table at the bottom is the number of cases that have missed their SLA during the month, or each year, each month. So again, you can see the left hand side, the more recent blue blocks are coming down quite significantly. So I think we are on the road to recovery, if you like. I think we suggested that we would have expected to see that by the end of March. And you can see that that trend has very much started. I think appendix C is just in numbers at the moment, but we can do something with that to make it prettier and more visible. But the ideal here is rather than just talk about what we've actually gone out through the door, this gives you a list of what we had at the beginning of the month, what we've done, whether it target or not, what's outstanding. And what's outstanding is also split into two parts. It's outstanding in terms of the total amounts of work that we've got incomplete, but we've also split it out into what we describe as reply due, and what you can actually work on, which is the open tasks at the end of the period. So this gives you a real flavor as to how much work is outstanding. And if over time you start seeing that go up, you know that there's a problem waiting to happen. So you haven't had that visibility before. So again, I'm just trying to be totally open and transparent with you. So before I move on to anything else, I think any questions on that. Councillor Redstone. Thank you, Paul. That's very helpful. A brief question, which I'm embarrassed that I don't know the answer to. Should have perhaps I missed the training course. Aggregation. Could you just explain what that is, please? Aggregation is like everything else in pensions. We always have a number of acronyms and number of different words that describe the same thing. But aggregation is effectively like combining. So we talk about next day transfers as well. So it's where someone has had a period of service in either another local authority or even another employer within our local authority is when you're combining or joining those bits of service together. So that's something that historically we've always given as a low priority because they're not going to lose that. We're just going to join the bits together at some point. So that's why we it's often seen as red on here, because we've just prioritized all those other things like deaths and retirements. Councillor Taylor. I was just I just I was going to ask something about the other bullet points, but maybe you're going to go through them now. Yeah. OK, I'll wait. Thank you. Paul, can I just just ask you a quick and it's more about presentation. So obviously there are some areas in this table which, as you just said, you prioritize over others. Would it be possible for us to see what you could call a code those that you're prioritizing on a on a sort of when you do the report, because I can look at this table and go, well, I can see from the slightly higher percentages that it might be something that's easy or it might be something that you're prioritizing. So it would be quite useful, I think, for the committee to understand where you're prioritizing something, whether it's going well because you're prioritizing it or whether it's not going well, even though it's a priority. If you follow my logic, I don't know how you would do that, but it might be to call again. Absolutely. And we've had the similar discussion with with Ray. So I will have that discussion offline with Ray before the next meeting. So the next board and committee meeting, which may be in a again, a different format, more akin to the C appendix, but we will have some colors on it at the moment. It's just black and white. OK, fine. Thank you very much. So we'll pick up. I mean, the obvious priorities are obviously always deaths and retirements and redundancy sort of thing. But we can cover that off next time. And the council has a question of apologies. Just briefly, could you say something about the refunds that seems to fluctuate in and out between green and red? And I wonder how much of a priority you give to those refunds don't tend to be a high priority. I think refunds, a lot of this is quotations rather than actual payments. So the payment turnaround an SLA is less than the quotation. So anything that gets to we tend to sort of split everything into half, which is doing a set of numbers. And if there's a payment that the SLA is almost half generally. So so if we miss the payments, they become much more visible. The refunds generally when someone leaves, they get the option of having the money back straight away. The vast majority of people don't take that option. They actually use this what we describe as frozen refund option, which means that they can take up to five years to make a decision. And the idea is that they could potentially move to another public sector organisation and therefore wish to transfer that to rather than take the money back. So it's a low priority unless we're actually paying something out. Thank you, Chair. Paul, on page 123, that chart with all the colours on it, the KPIs at the bottom, it has a table about vacancies. And it seems to me that there's a lot of vacancies. So are you very much understaffed and overloaded with work with people who are there? Or is it something that we should be concerned about? We have historically had a number of vacancies, but the team has grown significantly over the last 12 months. And we've also obviously taken on the help desk in April. So we had a significant amount of recruitment associated with the help desk. So we took on three new operators there. In terms of actual vacancies now, we have one. I don't quite understand the table at the bottom then that says pension help desk, two vacancies, fixed term conduct. Maybe I'm misreading the chart. No, two vacancies were there at the end of March. But as of now, we have one. So two is not a big number and one is a lower number. The size of the team is about what, 24, 22, 24? It's now 33, I think, because of the help desk. Okay, I got that wrong. Because you've brought in three people, haven't you? The help desk is five people. And we've also taken on some extra apprentices. So as I said, we've got one vacancy in the whole of the administration team at this point in time. It's just a cumulative, at the bottom it goes five, four, three. And I was just aggregating them up and saying, well, you've got all those vacancies. And now, so I'm misreading this chart, perhaps? I will explain the chart. Sorry, apologies. So the chart reads down. So from the month, it goes right the way down the page. You'll see that the vacancies associated with March 24 is two. And the number of vacancies in April 23 was three. So it's the column that tells you when it was associated with what. So we're saying at the end of April 23, we had three vacancies. Yeah, et cetera. So it's not a cumulative. It's at the end of each month. Apologies if it's not clear. Okay. Do you want to continue? Okay. The only other appendices is the help desk, which I'm not going to dwell on. I think we have seen some periods of sort of silver and bronze. But I think that was predominantly to do with the recruitment, the training of those new staff, and the fact that we've had an unusual amount of bulk mailings, particularly around moving the pensions to the online service. So we were defaulting to online. And we had a significant number of opt types of that, which again, created work for the administration team to update their records. But I think I would imagine that this would go back to one page and everything would go gold the next quarter. So I won't dwell on that. So that's it on KPIs. The staff, and we just talked about in terms of there is only one. There are a number of projects in the paper. I'll mention the guaranteed minimum pension. This is a project that's been ongoing for a number of years, where we are trying to effectively compare our records to those of the DWP or HMRC. And those have all now been reconciled with those. We've made the decision as to which we believe is correct, because not always necessarily HMRC's record or DWP's records. We have been working with Mercer's on that project, and they gave us the data much later than we anticipated. And we literally had something like 10 days to try and get this through before the pension increase. So we made some decisions that we might have made slightly differently, had we had more time to do extra checking. But we pressed on, and we have effectively progressed all of the pensioner records. So there were around 2,000 pensioner records that needed some sort of change. The vast majority of those, about 1,400 of those, were under the State's Harmon H, which means that we only needed to effectively update their records rather than actually change the pension in payment. So it was the other 600 that we've had to actually make some changes on. And these are sort of outlined in the paper. We've had a small number of complaints, which is not surprising when you're reducing someone's pension. And those have all been effectively dealt with without any issues. We expected some financial hardship challenges, but none have materialized. So we are keeping an eye on that. And again, because we've given them three months notice, we may get some more challenges when that three months is up and the actual money physically goes down. So we will keep an eye on it. In terms of the other things I mentioned, annual benefit statements, because we're moving into that season. So we are at the stage where we're pleased to say that obviously the vast majority are now on iConnect, which means we don't need to go out and collect any data. But there were 10 employers that we have still done end of year returns. The data is in for all but one of those. In fact, the other one we did have data in, but we've effectively sent it back and said try and do a bit better. So we are now in a position where we can sort of start work on the production of those statements. And we drafted the new templates. The intention this year is to actually do two benefit statements. So we're doing one in the same format as last year. And we are doing a new, even simpler version, with a few pictures on, that will be through the new member self service, which is another item on here that we're looking to launch this month with East Sussex as an employer, as a pilot, with a view that we will go live with everyone else in July. So we're trying to do that in time to get these benefit statements out in this new, simple format. And that's the one that we'll point people to. But if people want more detail, they will have the same option to look at the same format as last year. Can I ask you a quick question? And I think you answered this question on board and I've forgotten the answer. So my apologies. But of the 10 employers who are not on iConnect, what's your expectation? How many of them are large employers? And what is your expectation with respect to getting them all on? There are four of the 10 are over 100. Only one of them is over 500. In fact, it's got about 1400 members, which is Brighton Uni. I think the expectation is that we will get all of these on before next year's annual benefit statements. We obviously close things down while we're doing annual benefit statements. And we will look to re-onboard those 10 from about October this year. And I think some of them were close, but not quite there. So I think there's only one or two that we'll have any concerns about. And we will, as I said, pick those up from October. I'm sure they'll all be complete next year. Thank you. I think that's probably all I wanted to say, unless anyone's got any further questions on projects. So my final question at the end of all is, are you happy that you had the resourcing you need to deal with these problems? You said in February you were. Is that still the case? Absolutely. I'm very comfortable with the resourcing we've got at this point in time. I think we have pretty much cleared all the backlogs now, as you will see from these numbers. The numbers are a much more manageable number. I think there will be some events over the next month that will change that. We're expecting a very large iConnect file from a particular employer that will give us 10 months worth of work. So that will change again, but we'll be able to explain any changes. So very comfortable. We've also, over the last six months, introduced three robots. So we now have a lot of the low-lying fruits, if you like, that are highly repetitive numbers like the refunds, like the deferreds that can now be done automatically. So effectively, from receiving the iConnect file, we will be able to put that data straight into the system. The system will produce numbers for those refunds. So our role will be checking and making sure that they're right rather than actually producing them and checking them. So I think there's been a lot of change over the last 12 months, which means that we're now in a very good position.

Paul, that's brilliant. Thank you very much. So without any further questions, the committee are recommended to note the report. Are you happy to note the report? Okay. So if we move on to Agenda Item 9, Russell, you're going to give us the quarterly budget report update. Thank you, Chair. Just to start off with, I thought I'd mention about the accounts. So all the outstanding audits have now been closed, and the accounts for 2324 are on the website. And the external audit for that will be starting next week. In regards to the out-turn position, we're reporting 4.1 million as the out-turn position, which is about 300,000 less than the previously reported out-turn position. The main reason for that was a change in process between East Sussex County Councils and the pension fund around the recharge of costs between the two, and some of the costs were being double counted within the forecast, which relates to about 200,000 of the underspend. And then we had projects with the Investment Advisor and around the administration of the scheme, which were put in, which turned out to not start before the 31st of March. So those costs have sort of been moved forwards into the next year. So that covers most of that underspend, and I'm happy to ask, is there any questions on those? Thank you very much. Any questions from the committee? Okay. Just looking forward, and to the current financial year, are there any substantial headwinds or tailwinds, in the sense that you have those here, you had obviously a reasonable underspend. Do you anticipate that drifting back up this year? Are there any demands that you foresee which will do that? I don't think there's any particular demands that are going to be pushing it back up this year. We've got the valuation coming up in a year's time, which may start pushing up the majority of the actuarial costs. Thank you very much, Russell. Any questions from the committee? Further questions? Okay. On that basis, the Pension Committee recommended to note the report. We're happy to note the report. That's great. Thank you very much. We now move to Agenda Item 10, the internal audit reports, well, the two internal audit reports, which Danny Simpson, I think, is going to take us through. I see Danny on the screen. Thank you. Thank you, Chair, and good morning, everybody. As with previous reports, I won't go through the detail, because I think you've had a chance to read them all, but we have two reports for you this morning, pension fund cash management, on which we're able to give substantial assurance with two low-risk findings, and the administration of pension benefits, which we gave reasonable assurance for, and reported four low-risk findings, four of the findings actions were created with management to resolve them. In a sense, I've got very little else to add to what the reports already say, but I'm very happy to take any questions you may have. Thank you, Danny. Any questions from the committee? No questions? Danny, you're getting off light here. You did at the board refer to changes in the structure of signatories on the cash management side, I think. There was a discussion about it. Could you remind the committee what the current position is? >>We're talking about signatories for changes -- yes, okay. The position for the bank account is now that every transaction from the pension fund bank account has to carry the signature of at least one officer of the pension fund as opposed to the county council, and that to change the previous position where transactions could be approved by officers of the county council acting on their behalf, but this just goes to transparency and control within the pension fund, so no transaction can be -- or no payment can be made without a pension fund officer now. That's great. That's -- thank you very much. That's really appreciated. Any questions? No questions? No? All right. Okay. Danny, you do get off light, so the committee is recommended to note the cash management audit report and the administration of pension benefits audit report. Are you happy to note those two reports? Danny, thank you very much. Really appreciated. >>Thank you. If we now move on to agenda item 11, the risk register, Sian, could you introduce the report? >>Yes, thank you, Chair. So paper 11 is an update to the risk register. There's only one minor change that we're recommending for Sian, and that's to slightly increase risk I3, which is regulatory risk. It's only moving up from a green 2 to an amber 4. It's not a large increase, but we thought it was worth just increasing it a little bit. And this is basically due to the uncertainty of regulations that have been coming in and are coming to us within the LGPS. So there's been a number of consultations and various kind of direction, but we haven't yet seen the regulations for those, so we're not entirely sure of the implications. So it's just raising that just so it's slightly more on our radar rather than a nice green. And just to highlight that although we haven't changed the risks on any other items, there are four items in section 4 that we are keeping very close review on. Cyber security is one of the largest risks for all public sector organizations. Inflation and liquidity for obvious reasons, looking at the market, and there'll be some discussion on liquidity at the strategy day in July. And then we've just got I9 as a monitor for the ABCs, and that's following the discussion we had at the last meeting where we're going to get a little bit more information to come back to you from a consultant. So just once we've received that information, we'll know whether there's any changes or additional risks that we need to be aware of. So it's not something we're concerned about at the moment, but we're just waiting on that further information. But happy to take any questions. Questions? One observation I made at board was that really which relates to your -- was certainly pertinent to your first point, I think, is that there are increasing pressures on LGPS funds to invest in specific areas, be it United Kingdom, be it levelling up, be it children's services, be it social housing, be it private equity. And it becomes very, very difficult to run -- bespokely run the asset allocation of an LGPS scheme with all of those -- well, intentioned, let's say, but not necessarily helpful interventions. And so I'm assuming that those risks sit with the regulatory risk, because I think it's a really big problem, because people just like to say, well, we can use a pension fund to achieve that social outcome, which may sound fine in principle, but in practice it might actually lead to bad outcomes for the pension fund if they're not careful. So particularly if they're starting to determine what quotient -- what quota, whether it's 10% or 5% or whatever. And so I think we need to be mindful, one, about how access responds to that in terms of the fund structures that it creates for the fund to invest in in some of these areas, but also how it affects our asset allocation. So it's just really something to keep in mind. Okay. So if we move from the risk register, which we are now seeking to note -- are we happy to note the risk register? We now move on to the investment report, gender item 12, which Russell will introduce. Thank you, Chair. On the -- the first thing I would like to bring to your attention is on the work plan. So we were originally planning to do the stewardship report at the end of May. That has now slipped as there were pressures that we weren't anticipating at the time. We've made that commitment. So we're now going to be going back to the October deadline for the stewardship report. Moving on to the quarterly performance report, there was a positive absolute return from the fund of about 177 million over the quarter. But that was an underperformance against the benchmark for the period. There was a sort of standout negative performance, which we'll go into more detail in the private part of the meeting, which was the M&G infrastructure investment. In more general terms, sort of the equity managers all did well in terms of absolute performance but were still underperforming their benchmarks there. I'll pass over to Andrew to go into a bit more detail around the quarterly performance. Thanks Russell. Thanks, Chair. I'll keep my comments brief given that there's not a huge amount on the investment agenda today. There's a couple of managers to pick out in terms of the performance report and then there's a point to make on implementation. But I'd like to turn -- to start with, to cover the markets over the quarter, I'd like to turn the committee's attention to page 181 of the pack. And as Russell's alluded to, Q1 was a really strong set of returns across the board for pension funds. So if you look at the chart on page 181, you can see the red bars are big strong positives. So global equity markets return at the order of 9 or 10%. And then you have the UK gilt type asset classes on the right-hand side, negative returns. So yields have ticked up slightly over the quarter and that's based off the market price and in higher interest rates for longer in the UK. And the bond prices have come down, which are a general mimic for the liabilities. So the things that were driving the strong equity returns is strong data from the US. So a resilient US economy, an ongoing high level enthusiasm about technology in general and particularly AI. So we had news this morning that Nvidia is now the largest capitalized company in the world, so they're overtaking Microsoft. So that just shows the kind of backing and enthusiasm for that sector. And then there's also the expectations of interest rate cuts, boosting the share prices. So the market's pricing and the interest rates cuts will come and causing them the kind of return-seeking asset classes to do well. As I touched on, the key thing driving markets is this kind of dynamic between inflation and interest rates and trying to price in how that interest rate curve looks going up in the future. And it changes almost on a day-by-day basis. What we saw over Q1 was the interest rate expectations move up slightly, just to say actually data's looking pretty strong, sentiment's pretty strong, so we think the cuts will come more slowly essentially. And that's true for the UK and the US. Within the separate equity markets, so UK perform particularly well. So UK has large allocations to financials, industrials, and energy. They all perform well over the quarter. And within bond markets, we started to see-- bond markets were mixed essentially because of this kind of dynamic I described in terms of interest rates. If we look at the UK in particular, so the 20-year gilt rate, which is quite relevant for the fund, that was at 4.7% as of yesterday. So that's moved up 0.5% over the year. So even though the market's pricing it in, interest rate cuts, we're still seeing interest rates move up slightly. The one thing to pull out on this slide, which we discussed at the IWG meeting, is our view on UK corporate bonds, which is probably the key change over the quarter. You can see on this chart on page 181, UK investment-grade corporate bonds is the fourth from the right, so the 0.0% bar. But essentially, our research team is looking at markets all the time, and we've discussed in the past that the absolute yield on these corporate bonds has gone up significantly as interest rates came up. But what we've seen is actually the credit element of that. So you get paid a small premium of gilts for holding UK credit. That credit element's come in really tight. So the returns have come through, and it's performed well. So as we look at that as we sit here today, it looks like it's an asymmetric return profile, so the credit spreads have come in. It looks like there's more downside from upside. And I think that's important for the fund, because looking back to the strategy review, the fund currently has an allocation to investment-grade bonds, and the idea is to transition that over to multi-asset credit over time. So it's something that we should consider doing and something we can pick up with the investment group. So there's no decision or thought for the Committee today, but it's something we'll be talking about in a bit more detail, given what's happened in markets. To move back to page 177, so this talks a little bit more about the actual performance, and Russell probably pulled out the key bits, actually, already, so I won't spend too much time on it. But overall numbers, so bottom of the table, were strong for the quarter, so 3.9 percent overall. Did lag the benchmark, so the benchmark's a blend of the manager benchmarks, which returned 5 percent, so just over 1 percent underperformance. Key drivers behind that, again, is probably the usual culprits we've talked about a little in the past. So looking down the equity managers, so the top four or five lines at the table, Osmosis Longview, Bailey Gift Store brand, all performing as you would expect, so slightly behind benchmark, but broadly keeping track with that strong 9.9 percent return from the market. The ones that are more significant in terms of underperformance are Webb and Wellington. So again, we've talked in the past about their relatively concentrated approach, biased towards impact and slight growth nature stocks, and that's continued to hamper them in terms of their performance. The one point I would bring out is that we now have a three-year, so this is the first quarter where there's a three-year track record for those two fund managers, and typically managers look to be evaluated over a three-year cycle, so it may be relevant to take a closer look at them now. We've got that three-year period, and we've got performance data there. The other names to pull out are the private equity names, so Harbour Vest and Adam Street. So again, we've talked in the past about how strong their performance has been over the past three years, and we've started to see the valuations and the portfolios moderate slightly, so a return of 1 percent for Harbour Vest, 2 percent for Adam Street over the quarter versus the public equity benchmark of nine. So it looks like a significant lag, but in reality it's the private nature of the portfolios. If you look at the longer term numbers, they're actually still really strong, so three-year performance, particularly from Harbour Vest, of over 20 percent, so still having plenty of value there. I guess the thing to watch with them is how much that continues to moderate versus the public market, and that's something we can keep an eye on. The other names to pull out, so looking at the absolute return managers, so Newton and Ruffa, quite starkly different performance over the quarter and 12 months for those two names. So Ruffa is positioned with a risk-off sentiment, so they have allocations to bonds, gilts, gold, risk-averse currencies, and that's hampered them over the last 12 months. You can see minus 6 percent return versus an absolute benchmark of over 7 percent. So they have a very strong view, their position for that view, and that's not played out as of yet. Newton is almost the opposite. They're positioned in highly inequities. They're positioned for this technology theme, so they're seeing their performance come through. So actually, similar by asset class but very different strategies, and they're complementing each other in terms of their return profile. The other name to pull out on this slide is, as Russell alluded to, M&G Infrastructure has had a really tough quarter and year, and given there's some sensitive information around that, we'll talk more about in the private section. Manatee now would be looking at it quite closely. Moving forward to page 178. So touching very briefly, so this looks at the strategic elements of the strategy that we'll consider in a minute. As I mentioned, there's not a great deal, given we've worked through a lot of the strategy work so far. Top points on page 178 talks about the liquid fixed-income manager selection. So as a reminder, this is multi-asset credit, as I understand, from the team. So it's been a while in the making, but the first allocation to Blue Bay was made just post-quarter end in May, so that's in train and has been funded, so that's good news. The liquid fixed-income allocation, so the next item there, so there's some interaction with -- so strategic allocation was agreed at the point of the strategy review. The intention is to try and implement that by the access pool, so there's an interaction there in terms of how best to do that, and so that's a work in progress. The other thing to pull out on this page is potentially something that the committee will have heard on a bit more high profile, so there's a large allocation to MEG Alpha Opportunities Fund in the strategy, so a fixed-income allocation. They announced over the quarter they had a small holding in Thames Water, so Thames/Kemball Water, essentially the same underlying position. And it impacted the -- so a small holding of around 0.3 percent. I'm sure everyone will be aware that there was a high-profile default on their debt, so CEO resigned, required additional equity injection, and they couldn't meet their debt payment, so that did impact the fund negatively, so with the order of 0.3 percent to returns, but I would say it's not unusual for a manager to hold that type of debt, so it's quite widely held debt, and actually MEG had a relatively small position in it, and their overall performance number, of course, was really strong at 3.7 percent, so something to be aware of, but not really a concern. You typically see higher positions in that type of debt in the buy-and-hold passive type strategy, so that's one of the benefits of having MEG in the fund. Final points on page 179 is to do with the Schroder's real estate mandate, so again, we've mentioned this a couple of times in the past, but we have concerns over the continuity of their business, so without going into too much detail, they have quite a concentrated investor base, the decision's been made to move on, and move the propertyholders onto the pool, and we still remain really supportive of that. So I'll pause there. I'll take any questions. As I say, we'll talk a bit more about MEG in the private section. Councillor Tuttle? Thanks, Chair. I know I've been reassured in the past when I mentioned the nervousness I have over Ruffa, and I understand from Andrew's saying, explaining the strategy that happened, the difference between themselves and Newton, but their strong performance has been historic, and that was before they had the changes at the top level of the organisation, and I guess I'm looking for further reassurance that that's not the reason, or part of the reason, for the poor performance more recently. So I think, was it you and I, or was it myself and Russell? Myself and Russell did have a call with them about six months ago now, I'm guessing, doesn't time fly, where we gave them some fairly aggressive challenge. You know me, I'm not a blushing violet. So we gave them a bit of constructive challenge, and my impression was that they had strong conviction trades, and one of the things that I would observe about Ruffa is that historically, they tend to get it right but two years too early, and so when everything goes horribly wrong, eventually they're up 10 or 15%, nevertheless, you know, to be down 16% is even by their standards unusual, so it might warrant some further poking. I think William would like to say something, Andrew, and then I'll leave you to five. I think on Ruffa specifically, and the reason I think we should hold them is very much because they have a very different strategy from anybody else, and diversification is quite difficult to come by at the moment. Much more general point, the numbers are horribly red on the SEO sheet, but what's really happened is that the market index has outperformed, particularly what's called the magnificent seven, the big seven tech stocks, and the first quarter in particular was very strong. The second quarter, from the end of March till today, there's been a little bit of outperformance, but it hasn't been as strong. It may continue. I'm not going to say it doesn't continue, but don't, you know, I mean, the fact that everything's horrible, so red, isn't necessarily the manager's fault. I mean, William's point about the lack of correlation is quite a valid one, which is that they tend to do well when everybody else does badly, and during the crisis, during the pandemic, they were basically the only thing which is going up, and so there is that to them, and their trades that they outlined to Russell and myself were quite, they had good coherent reasons for them, but as observed, they tend to go through these periods, I mean, I think it went through a three-year period in the late teens, you know, 2017, 2018, they were having a, they had a pretty bland time, only to kind of like make out very strongly thereafter. So, but yeah, I've got no problem with kicking the tires with them again, because, you know, it keeps them sort of focused on the fact that investors are noticing these things. Andrew. Yeah, I'd agree with what's said, actually. So I think, rougher by their own admission, they describe their return profile as lumpy, so they'll go through these periods where there's one, two years, where it's quite muted. I would say the last 12 months, from speaking to them, like you say, it's probably slightly outside of their expectations, so not lumpy, but in fact, it's a bit, it's quite negative, so not unusual, but maybe a bit disappointing, but that's, if they're a high-conviction manager, that's how they construct their strategy, so they have this very strong view that this all ends in high inflation, and a big risk-averse event, so that's how their positions, I would agree, typically, when you look at their return profile, they tend to be a bit early, and then it's a bit of pain until that view comes through, if it ever does. We've met them a couple of times to talk about, well, more than a couple of times, actually, we've met them three or four times over the last year or two to talk about that team change, and we've got comfortable that they've got a team approach, and that's not impacting the strategy. I think what would be more worrying is if they changed their approach, so I don't think that's happened at all, so they've stuck to how they were doing, what they were doing before. One point, sorry, I did miss, I forgot to elaborate on the first page, it was William's point, so if you look at the longer-term numbers on page 176, this is the point about the benchmarks outperform it, so it does look like there's a lot of underperformance in the strategy, but if you look at the bottom left-hand chart, the actual scheme return numbers are pretty strong, so you've got a quarter of 3.9, 12 months, nearly 8%, three years, over 5%, so these aren't poor performance numbers at all, but what's happened is there's been some underperformance by some of the equity managers, which we talked about, so that is active management, but we've had interest rates and inflation be extremely high over those periods, so the benchmarks that are linked to cash plus or inflation plus, they're actually a lot higher, so the managers have struggled to keep up, it's not that they've performed particularly badly, it's just the benchmarks have stepped up significantly, so it's just worth bearing in mind when you look at the numbers that that's what's happened, but overall, no concerns with buffer, I don't think. When Russell and I talked to them, we asked them for sort of like a historic comparison, because when these funds have these big drawdowns, your inclination is to say, well, okay, you've had a number of drawdowns in the past, which are of a similar magnitude, so can you talk us through, first of all, those drawdowns, and how this drawdown is any different from those drawdowns, and also what your plan is to actually make the money back and make an excess return, and I would want to ask them that question again, I think, actually, given that it's down 16 percent, but I think that the biggest problem they had was in fixed income, wasn't it, that that was the rise in yields was really rather, and it's affected a number of these total return funds who have also got very good reputations, and so they're not alone, but my recollection is they had a view on credit spreads, that they had a view on Sterling Yen, they had a strong view on bond yields, and they had a very negative view on equity markets. That was probably four, if not, and there may have been five or six, but those are the main ones that stuck in my head, so the question is, do they still believe those things, have they still got the positions on, and, you know, when's it going to come, good, William, you want to say something, don't you? Yes, I think, I mean, anybody who purchased kind of what's called growth kind of assets and perhaps some in the period kind of '17, '18, '19, '20 has ended up with a capital drawdown because bond yields and rates have gone, well, bond yields in particular went up so much, and it's actually worth, you know, the worst equity performance we have here are actually the sustainable equities, Webb and Wellington, and a bit of that is for the same reason. It's not that they've done anything wrong. It's not that their thesis is necessarily broken. It's simply that when we purchased their fund, when we entered their fund, the assets we were effectively purchasing were purchased at too high a price with hindsight. I do emphasize the words with hindsight. Councillor Redstone. Thank you very much. I was going to ask a fake question about that. So do we think there's any systematic issue with the sustainable equities, or do we think it's just that we purchased them at too high a price? We did buy a response and then let others go in. Bottom line is we bought them for a good long-term reason. I don't think that has changed at all. They are investing in companies which we're expecting to benefit from the move towards net zero and climate transition. That has not changed. Now, whether they're good at actually doing that is a slightly different question, and I know with one of the two managers that are, you know, the officers have been looking at and deciding. I'm perfectly comfortable with both of them, but that's my view. Yeah, I think the strategic rationale is still there, so they were selected for that reason, William said. So equities will benefit from this transition to net zero. I think performance has struggled in reality, but it's probably been the kind of unintended bias of the portfolio. So they tend to have this slight growth bias just because of the universe of stocks they're picking from. That's struggled as interest rates have gone up. So you saw Bailey Gifford who have a slightly different but similar strategy, they've struggled as well. So I think it's explainable why they've struggled. They're also, they're quite similar in the way they construct their portfolio. So they both are highly concentrated, they both invest with themes. So the fact that they've both underperformed isn't surprising, but it may be a question as to are they too similar, you know, in terms of going forward. So that's maybe one question I would ask. I think back to my original point is that we've now got a three-year track record with them in the fund. So I'm not saying that means that they've underperformed, let's move on, it's probably worth a closer look, you know, to say there's a three-year period here, let's do, let's have a look, a close look at how you've done versus peers or versus benchmark, et cetera. Just to add, well, two tiny points, where we're saying obviously they've underperformed, they're still good returns if we're looking at that one-year position, so 7% and 11% on that one year. So it's compared against that benchmark, they're still good returns, so let's not forget that. And one thing that relating to a comment that William made earlier but specific to these two funds is those big seven tech funds are not in these portfolios, they are not opportunistic looking for solutions either in social or environmental top areas, so they wouldn't be touched. So actually that's one of the reasons why there is a difference between those two.

• Councilor Redstone.
• So in a way, just a comment, that means in a way they are a hedge against some big tech correction which tends to happen sometime, okay, thank you.
• Just going back to the kicking the tires exercise, I suppose obviously we have the original investment hypothesis, I think we probably should just reassure ourselves that we're happy with the original investment hypothesis, which I'm not unhappy with, but I would like to see a bit more evidence around that. The two things that worry me are how we judge them. It's not an easy thing to index these kind of funds, and so how we judge them, are we judging them just versus their peer group, are we judging them versus the MSCI global equity index, what are we judging them against, and that's one of my concerns, it's more about how you philosophically think about whether they're doing a good or a bad job. And the other issue I have, and it's only really since sort of like we've had these discussions with Wellington, that the investable universe is terribly small. And that troubles me a bit, simply because if you've got 67 stocks in an investment universe of 500, that's quite something really. So those would be my reservations, but how you judge them, what you judge them against, is probably a better way of thinking about, well, we've got the investment hypothesis, are they actually delivering on the hypothesis, and how are they doing versus their peers, and the wider index. My comment would be that it's fairly easy to kind of find a metric to say have we made a good decision by investing in these funds. I think they should be judged against the MSCI and should do at least as well, and preferably better. It's more difficult, as you said, to find a metric to measure them to say have the managers done a good job. I was going back to the question around diversification, but the other comments are sort of built in. Just looking at the long term numbers, it looks like our sustainable approach is quite correlated. The managers are quite correlated with each other in terms of, you know, when one under performs, they all underperform, because you've got on explained about the smaller universe, et cetera. So we will get these periods, and the long term numbers don't look particularly good either. I just wondered, does that suggest perhaps that we ought to consider increasing our diversification, so that we've got 42% to global equities and it's all sustainable, should we perhaps think about other asset classes increasing their weightings and to diversify a bit more to take away from this impact? I will defer to the experts on that. Yeah, I think we've just gone through a strategy review, and I think at that point the overall allocation to equities was agreed at 42%. That feels about right. I've not really seen any other LGPS funds go any lower than that, so I don't think we'd be recommending to take that down. I guess there's no harm in looking at the composition of how that looks. The move towards the sustainable mandate has been a really positive thing over the last few years or so, so I'm not saying that should be reversed, but every equity portfolio, however it's constructed, has biases, whether it's regional sector style. So it's just ensuring that the current biases in the portfolio everyone's comfortable with and happy with, and that often comes down to beliefs, so beliefs in active management, beliefs in certain sectors. I do agree with Shan's point about the tech element, though. So technology is reported by every day, the US and the passive entities have huge biases to these areas of the market, so having something that doesn't have that isn't necessarily a bad thing, even though it's causing a bit of a lag in performance at the minute, because who knows what could happen. We see some of the valuations really stacking up there, and they're such a big part of the index. I mean, one of the interesting questions, and I shared a chart with William about a month ago, which is if you look at the S&P versus the European, probably Euro stocks index, I need to check, and you do it on an equal weighted basis, so you get rid of the magnificent sevens dominance in the S&P 500, and you effectively weight every stock equally, there isn't a huge amount of performance divergence between those two markets, even though the US market looks like it's gone through the roof, but it has, if you actually own those seven stocks, and so maybe one way of thinking about this and getting through this problem is to think about an equal weighted index rather than one which is as a sort of a way of benchmarking people. It just is sort of a pondering, but Councillor Hollidge? Thank you very much. If I'm following this discussion, we're talking about market sectors that we invest in. I'm looking at page 207 here and the global equity market background, and it shows the region's returns, and then it shows the sector returns, and what I'd like to ask is, please, you've got financials, utilities, consumer staples, consumer discretionary, energy, health and technology, and we've been talking about the great return of 12% from the big seven, but construction and building doesn't seem to be in there as a sector, or is it included in one of those? With population growth, which is going to continue to happen, and some of the tragedies that are going on around the world, construction and building is going to, I would have thought, been a great investment area. Do the experts agree that that is a sector that we should be investing in? It will be as part of the indices, and the manager portfolio is just not shown on this chart, essentially, so we'll be able to add that if that's something that might be useful. I guess structurally the dynamics are probably there to make the demand supply, so long-term structural dynamics probably support those areas of the markets, and whether managers allocate to them. I guess our view is to have a diversified mandate and allow the managers to pick where they see best relative values, so that's what we would propose. Whether the managers allocate there will be dependent on various different things, so their time horizon, where they're seeing opportunities relative to others, their mandate, so it feels structured like there should be exposure there within the portfolio, and which there will be, but it's with the managers to make those sector-based decisions, I think. I think probably we brought that section to a close. Can we just perhaps agree that there were—I mean, it sounds like you're already doing a three-year review of those funds, so doing a three-year review of those two impact funds and also a little bit of challenge to rougher again for a better sense of what we've discussed, drawdowns and recoveries, and how is it different this time would be, I think, be quite helpful. Yeah, we agree with that. Okay. Does that bring us to the end of the public investment section? I was just going to add on— Just move to the work program, yeah? Thank you. I was just going to add a couple of points on access before we move on. So they have produced their out-turn, which was a slight overspend on their position, and they had an internal audit of the ASU, which gave them good assurance, which is their highest rating. Thank you, Russell. Any comments on access? Okay. So if we note that report, the investment report—and we'll come back to more detail in the exempt section—and if we move to the work program, Sian, I think you want to speak on that. Yes, thank you, Chair. So this is just your standard work program, setting out what you and the board are going to be seeing over the next 12 months. Your next meeting is not a committee meeting. It is a strategy day. So as I say, one of the areas we'll be looking at is some of the liquidity investigation. There are far too many things on our planned agenda at the moment, so we're having to whittle down a little bit. So we'll let you know what is going to be coming on the day once we've confirmed that. Next meeting, you should be seeing the accounts, I think, will be coming in the September meeting, possibly November. So that will be another big thing. Carbon footprinting and ESG impact assessment as well will be coming to your September meeting. But yeah, happy to take any questions on the future work program. There's obviously all your training that you've attended as well, so if there's anything on there that we haven't captured, then please let myself or Marianna know and we will update your records. That's it. Questions? So are we happy to do that? I didn't take my finger off the mic. Okay. That's good. We now move to that point. Actually, I'm also asked to recommend you to advise on training completed and not recorded in the training log. Sorry, I missed that sort of second recommendation for the work program. That having been done, there are no non-exempt items which have been notified to me. And so we move to the exclusion of the public and press. Do we agree to exclude the public and press from the meeting for the remaining agenda items on the grounds that if the public and press were present, there would be disclosure to them of exempt information as specified in paragraph 3 of part 1 of the local government act 1972 as amended, namely information relating to the financial or business affairs of any particular person? Are the committee content also that board members who are attending also sit on the exempt session? Yeah? Okay. So we're happy to do that. So if we could stop the webcast.