This meeting included a training session on the implications of Local Government Pension Scheme (LGPS) pooling¹ for fund administration, and a number of discussions about the work of the Southwark Pension Fund during the previous six months.

Asset Allocation

The market value of the fund at the end of June 2024 was £2,257.8m, an increase of £18.9m (+0.8%) on the previous quarter. A report presented for discussion contained an update on the fund's asset allocation, broken down by manager and asset class. The largest allocation is to global equities at 54.2% of the total fund, managed by Blackrock, LGIM, Newton Investment Management, and Comgest. Within this, the largest allocation is to low carbon passive equity, which has an allocation of 35.9% of the total fund, and is managed by Blackrock and LGIM. The next largest allocation is to property at 15.8%, managed by a number of different firms:

• Nuveen
• Invesco
• M&G
• Darwin Alternatives
• Frogmore
• Brockton Everlast

The next largest allocation is to ESG priority investments at 13.1%, of which the largest individual investments are:

• Glennmont Clean Energy Fund III (€32.4m)
• Glennmont Clean Energy Fund IV (€11.35m)
• Blackstone Strategic Capital Holdings II ($56.43m)

The report also contained a detailed update on the performance of the fund, as well as of the individual investments managed by each firm. The report notes that

The majority of the (minor) changes in over and underweight positions are linked to market movements, where there has been ongoing strong absolute performance in equity markets.

The report also contained an update on the progress of pooling arrangements for the M&G and Invesco UK Residential Property Funds:

Following the quarter end, officers and Aon have been liaising with Nuveen over operational changes to the direct property benchmark. The purpose is to improve alignment with the market environment within which Nuveen is operating on behalf of the Fund. It is expected that the benchmark change (from an absolute cash basis to a real-estate index-based benchmark) will be effective from 1 October 2024.

Multi-Asset Credit

The meeting was scheduled to be asked to ratify the decision to appoint LCIV² Alternative Credit Fund as a multi-asset credit manager for the Southwark Pension Fund, with an allocation of £100m. This would bring the total allocation to Multi-Asset Credit to 10% of the total fund, split between LCIV Alternative Credit Fund and Robeco Climate Global Credits Fund, in line with the allocation agreed in December 2022.

The Local Pension Board

The meeting included an update on the Local Pension Board's meeting of 3 July 2024, the main items of which included:

• An update on recruitment within the fund administration team.
• The ongoing work in relation to data migration.
• The National Pension Dashboard.
• The issuance of annual benefit statements.
• Complaint management.
• An update on the breaches log.
• An update on the work undertaken in assessing the preparedness of the Fund's investment managers, custodian and banker in relation to cyber security.
• An update on the status of the audits recently concluded by Grant Thornton for the financial years 2021-22 and 2022-23.
• The Local Pension Board annual report.
• SAB guidance on preparing annual reports.
• An update on current LGPS issues.
• An investment update.

Pension Services

A report presented for discussion included an update on the work of the Pension Services department, specifically in relation to:

• Recruitment
• IT/systems
• The National Dashboard Programme
• Communication initiatives
• Complaint management
• Administration performance

In relation to communications, the report notes that:

A re-modelled Southwark Pension Fund website is due to go live shortly. This will include up-to-date Southwark house style, improved user navigation, and a dedicated section for Pension Fund Finance and Investments.

The report also lists a number of recent complaints made against the employer and the administering authority. In relation to complaints made against the administering authority, the report notes that:

Pensions Ombudsman single complaint - pensions liberation claim that pension fund undertook no receiving scheme due diligence when a transfer out was paid in 2016. Case Open - Pension Fund denies all allegations. Complainant has now taken an identical matter to the Crown Court, meaning the Ombudsman may have to discontinue its own investigation.

Adviser Updates

The meeting was scheduled to receive updates from the Fund's advisers, David Cullinan and Aon.

Mr Cullinan's report contained a review of the market background, the performance of LGPS funds, and the performance of the Southwark Pension Fund, which he describes as follows:

The Fund returned 1.1% over the quarter. Compared to a benchmark return of 1.9%, this represents a relative underperformance of 0.8%.

The report also included a detailed review of the performance of each of the individual investments in the Southwark Pension Fund. In relation to the portfolio managed by Nuveen Real Estate, the report notes that:

There is some optimism in Nuveen's latest report, and they remain confident that the current strategy and assets will exceed the performance objective over the longer-term.

Aon's report included an update on the Fund's funding level, which it estimates has increased from 115% to 116% over the quarter, and a review of the performance of the fund. Aon note that

As at quarter end, the Fund remains underweight to the Multi-Asset Credit, Property and Gilt asset classes and overweight to the Equity and ESG Priority Allocation asset classes.

Carbon Footprint

The meeting included an update on the carbon footprint of the Southwark Pension Fund. The report presented for discussion states that:

The results for 30 June 2024 show continuing improvement in the carbon footprint (Scope 1 and Scope 2) for the Fund. Since September 2017, the Fund has reduced its weighted carbon intensity by ~83%.

Approach to Engagement and Voting

The meeting was scheduled to receive an update on the Fund’s approach to engagement and voting. The report presented for discussion included details of the engagement and voting activities of the Local Authority Pension Fund Forum (LAPFF), as well as those of the fund's active equity managers (Newton and Comgest) and passive equity managers (LGIM and Blackrock). The report notes that:

The Fund intends to adopt a more proactive approach to engagement and voting activity.

Equality, Diversity and Inclusion

The meeting was scheduled to be asked to review and agree a new Equality, Diversity and Inclusion policy for the Southwark Pension Fund. The new policy has been developed in response to guidance issued by the Pensions Regulator in 2023. The report presented for discussion contains a draft policy document, which sets out the Fund's aims in relation to EDI, and the actions it will take to deliver these aims. In relation to Fund Management, the report notes that:

The Fund’s commitment is that regardless of the contract type, every employee, is entitled to a working environment that promotes dignity, equality and respect for all. The Fund will not tolerate any acts of unlawful or unfair discrimination committed against an employee, contractor, job applicant or visitor because of any protected characteristics, like sex, gender, marital status, race (including ethnic origin, colour, nationality and national origin), disability, sexual orientation, religion or belief, and age.

Pension Fund Statement of Accounts and Audit Findings Reports

The meeting was scheduled to be asked to note the audit findings reports for the 2021-22 and 2022-23 Pension Fund Statement of Accounts, which were prepared by Grant Thornton.

The reports contain details of the audit findings, and include a number of recommendations to management, including the following:

Management should review the UPM system and ensure that key reports to support the audit are available to be run

The report presented for discussion contains details of the management response to each of Grant Thornton's recommendations.