The Pensions Committee of Barking and Dagenham Council met on Wednesday 20 March 2024 to review the fund's quarterly performance, discuss administration and governance updates, and consider the implications of new regulatory guidance. Key decisions included the renewal of the Independent Advisor's contract and the transfer of private equity investments to Patria Investments.

Quarterly Monitoring Report

The committee received a comprehensive update on the Pension Fund's performance for the period 1 October to 31 December 2023, presented by Jesmine Anwar, Pension Fund Accountant, and David Walker from Hymans Robertson, who provided an economic overview.

David Walker noted a positive market environment during the quarter, with strong returns from equity and bond markets, driven by a shift in inflation expectations and anticipated interest rate cuts. However, the UK property market continues to face challenges, particularly the office sector, due to structural issues and changing working patterns. He also highlighted that pooled balanced funds are experiencing redemption queues as schemes look to move to new pooling solutions.

Regarding the fund's performance, for the fourth quarter of 2023, the fund returned 5.1% net of fees, outperforming its benchmark by 0.6%. Over one year, the fund underperformed its benchmark by 1.7%. The total fund value at the end of the quarter was £1.39 billion.

Councillor Rocky Gill raised several points, including the reason for a short-term loan of £14.5 million to the council, which was explained as a strategy to maximise returns in money market funds. He also inquired about underperforming fund managers, to which it was explained that investment strategies are designed for diversity, and a long-term view is necessary. The committee also discussed the fund's overweight position in equities, which was deemed acceptable as equities generally outperform other asset classes.

Concerns were raised about the expected employer contribution rates for the next three years. Officers and Hymans Robertson indicated that while a reduction is unlikely, it would not be significant, given the impact of pension increases due to high inflation. The increasing involvement of the London CIV in manager selection was also discussed, with assurances that direct relationships with most managers would be maintained.

The committee noted the progress on strategy development, daily value movements of assets and liabilities, and the quarterly performance of the fund and its managers.

Administration and Governance Report

Jesmine Anwar presented the Administration and Governance Report, which included an update on the fund's three-year budget and a cashflow forecast. The report indicated that the fund is expected to be cashflow positive after investment income for 2023/24 and 2024/25, but negative in the following year.

An update on the London Collective Investment Vehicle (LCIV) showed an increase in pooled assets to approximately £29.4 billion. The report also detailed a review of early retirement strain factors by Barnett Waddingham, the fund's actuaries. This review has led to updated factors which, if applied, would increase pension strain costs to the fund. The committee agreed that a written response would be sought regarding the augmentation factors and cashflow status.

The committee noted the report, including the budget, cashflow forecast, LCIV update, and the review of early retirement strain factors.

Independent Advisor - LGPS Update

John Raisin, the Independent Advisor, provided an update on the Local Government Pension Scheme (LGPS), focusing on The Pensions Regulator's (TPR) proposed General Code of Practice. This new code, due to come into force on 27 March 2024, aims to harmonise standards across pension schemes.

Mr. Raisin explained that while not all aspects of the code apply to the LGPS, significant elements related to governance, administration, and reporting will be relevant. He advised the committee to assess the fund's compliance with the code, develop a plan for any necessary changes, and attend relevant training. The Investment Fund Manager, David Dickinson, stated that the fund is already well-prepared, estimating an 80% compliance level, and committed to providing a report on progress at the next meeting.

The committee noted the report.

Business Plan 2024-2026

The committee received an update on the progress of the 2024-2026 Business Plan. Key activities in the last quarter included submitting a CMA compliance statement, meeting with fund managers, and commencing work with new auditors. A significant point of discussion was the need for ongoing member training, with the Investment Fund Manager suggesting that members might need to commit to half-day training sessions to cover the necessary knowledge and skills.

The committee noted the progress on the delivery of the business plan.

Appointment of Independent Advisor and Abrdn Update

In a private session, the committee resolved to extend the appointment of John Raisin Financial Services Limited as the Independent Advisor for a further year, with an agreed fee increase. They also agreed to the acquisition of Abrdn's Private Equity business by Patria Investments, including the transfer of all the fund's private equity investments to Patria. This will result in a revised strategic asset allocation for Diversified Alternatives, with specific allocations for Private Equity and Hedge Funds, and the removal of currency hedging from the remaining hedge fund and private equity portfolios.

The committee resolved to extend the appointment of John Raisin and agreed to the transfer of investments to Patria Investments.