The Pensions Committee of Barking and Dagenham Council met on Wednesday 20 March 2024 to review the fund's performance, discuss governance and administration, and consider updates from investment managers. Key decisions included the acquisition of Abrdn's Private Equity business by Patria Investments and the extension of the contract for the Council's Pension Fund Independent Advisor.

Quarterly Fund Performance and Market Outlook

The committee received a comprehensive report on the Pension Fund's performance for the period 1 October to 31 December 2023, along with a verbal update on unaudited performance up to March 2024. The Investment Fund Manager and the committee's Independent Advisor, John Raisin, provided commentary on the market background.

Discussions touched upon the current inflation rate of 3.4% and its likely future trajectory, with David Walker of Hymans Robertson¹ suggesting a gradual reduction towards the Bank of England's 2% target. However, he cautioned that labour market pressures and wage rises would likely sustain core inflationary pressures, particularly in the service sector. The committee also considered the cooling property market, exacerbated by the pandemic and the rise of remote working, and its impact on office space demand. Mr. Walker noted that while structural issues predated COVID-19, the pandemic accelerated trends like online retail, reducing the need for some industrial warehousing. He added that demand for prime office locations, such as in the south and London, remained strong, with rental values holding firm, unlike in more outlying areas. The energy performance of buildings was also highlighted as a factor influencing rental demand.

The committee noted the overall performance of the Fund and individual Fund Managers over one and three-year periods. Questions were raised regarding a short-term loan of £14.5 million to the Council, which the Investment Fund Manager explained was to maximise investments in money markets, currently yielding around 5.2-5.3%. Concerns about the underperformance of some Fund Managers against their benchmarks were addressed by the Investment Fund Manager, who stated that investment strategies are designed for diversity, leading to inevitable under and overperformance. He confirmed plans to review benchmarks to ensure they are more realistic, especially during periods of high inflation. The committee also discussed the potential re-evaluation of the Investment Strategy, which was noted as being slightly overweight in favour of equities. The Investment Fund Manager explained that equities tend to outperform other asset classes, and corrective action would be taken if they moved outside acceptable ranges. Regarding expected employer contribution rates for the next three years, it was suggested that while a reduction might be considered under financial pressure, significant decreases were unlikely due to substantial pension increases driven by high inflation, which put pressure on assets to perform. The committee also discussed potential concerns about officers developing an indirect relationship with Fund Managers due to increased involvement from the London CIV² in manager selection and monitoring. It was acknowledged that while this could create a disconnect, it would be a gradual process as only a few funds were invested with the London CIV, allowing officers to maintain good working relationships with most managers.

The committee noted the progress on strategy development, daily asset and liability movements, and the quarterly performance of pension funds and individual Fund Managers.

Administration and Governance

Jesmine Anwar, Pension Fund Accountant, presented an update on administrative and governance changes affecting the Pension Fund. The report included the Fund's one and three-year cashflow forecast (1 April 2023 - 31 March 2025) and an update on the London Collective Investment Vehicle (LCIV), as the Fund moves towards more pooled investments. A review by Barnett Waddingham, Fund Actuaries, on the strain factors arising from members taking unreduced early retirement was also presented.

Two questions were raised concerning the Fund's cash flow status and augmentation factors related to early retirements. A written response was to be sought from the Fund Actuaries, as the Council relies on their professional judgement. The committee noted the report.

Local Government Pension Scheme (LGPS) Update

The committee's Independent Advisor, John Raisin, provided his quarterly update on the LGPS, focusing on The Pensions Regulator's (TPR)³ proposed General Codes of Practice, specifically Code of Practice No. 14: Governance and Administration of Public Service Pension Schemes. This code is due to come into effect on 27 March 2024.

The advisor recommended that the committee assess the Fund's compliance with the relevant requirements of the TPR General Code, rather than waiting for guidance from the LGPS Advisory Board for England and Wales (SAB). This assessment should include a detailed review of the code, an evaluation of the Fund's current compliance, the development of a plan for necessary changes, and consideration of elements that, while not strictly applicable, might represent good practice. The advisor also suggested attending relevant seminars and webinars, utilising available tools and training from actuarial and investment consultants, and reporting progress on compliance to the committee and the Pension Board.

The Investment Fund Manager informed the committee that officers had already undertaken significant work and that a plan would be prepared for the next meeting detailing progress on implementing the code. He expressed confidence in meeting the necessary changes and enhancements for compliance. The committee noted the report.

Business Plan 2024-2026

A report on the progress of the 2024-2026 Business Plan actions was presented. Member training was highlighted as a key element, with the Investment Fund Manager outlining a structured programme over the three-year period. While training would continue to be integrated into meeting cycles, members might need to commit to one or two half-day training sessions annually. The committee noted the report.

Appointment of Independent Advisor

The committee resolved to extend the appointment of John Raisin Financial Services Limited as the Independent Advisor for the Council's Pension Fund for a further one-year period. This decision was based on a review of the advisor's work over the past year and included producing briefing notes for members and remote discussions on agenda content. The fee for the advisor was also increased to reflect inflationary pressures. The Investment Fund Manager will conduct a market review before the committee reconsiders the appointment next year.

Abrdn Update

Following a training session on private equity conducted by Patria Investments Ltd, the Pension Fund Accountant provided an update on recent structural changes at Abrdn, a Fund Manager, including the sale of its Private Equity business to Patria. Consequently, the Fund was required to make changes to its Diversified Alternatives, including a review of its hedge fund investments with Abrdn.

The committee resolved to agree to the acquisition of Abrdn's Private Equity business by Patria Investments and the subsequent transfer of all the Fund's private equity investments to Patria in April 2024. They also agreed to a £10 million cash transfer from Abrdn to Patria in April 2024. The target strategic asset allocation was amended from 11% for Diversified Alternatives to 9% for Private Equity and 2% for Hedge Funds. Additionally, the removal of currency hedging from the remaining hedge fund portfolio and the private equity portfolio was agreed.