The Pensions Committee met on 11 March 2024 and discussed the performance of the Islington Pension Fund. Members noted updates on the implementation of the fund's investment strategy and progress at the London Collective Investment Vehicle (CIV). The Committee also agreed to renew its subscription to the shareholder advisory services of the Pensions & Investment Research Consultants (PIRC).

Pension Fund Performance

The Committee noted the Pension Fund’s performance from 1 October to 31 December 2023. The combined fund had returned 2.2% gross of fees over the quarter, but this represented underperformance against the customised benchmark of 7.4%. Over 12 months to December 2023, however, the fund was ahead of its customised benchmark, with a return of 12.2% compared to a benchmark return of 5.8%.

Councillor Diarmaid Ward, Vice-Chair of the Pensions Committee, expressed concern about the performance of the LCIV Sustainable Equity Fund, managed by RBC Global Asset Management. This fund had underperformed its benchmark, the MSCI World Index, by -1.2% over the quarter. Over 12 months, the fund had underperformed by -12.25% and over three years the underperformance was -8.06%. Councillor Ward asked that the London CIV be asked to assume greater monitoring of RBC’s underperformance.

That LCIV be asked to assume greater monitoring of RBC’s underperformance.
Extract from the minutes of the meeting of Islington Council's Pensions Committee, held on 11 March 2024. The extract refers to a discussion of the performance of the London CIV’s Sustainable Equity Fund, in particular to the performance of RBC Global Asset Management, the fund manager.

Councillor Ward also sought clarification on Newton Investment Management's overweight holding of tech stocks in the LCIV Global Equity Fund. These holdings had contributed to that fund's outperformance over the quarter.

Investment Strategy Review Update on Implementation

The Pensions Committee received an update on the implementation of the Investment Strategy that it had approved in July 2023.

Councillor Ward had previously asked officers to carry out further work on the costs of transitioning the Pension Fund's emerging market equities portfolio. The Committee discussed the options available to it, including:

• Maintaining the current allocation to a single, active manager and a single, passive manager;
• Appointing a second active emerging market equities manager; or
• Investing in the London CIV's emerging market equities fund.

Members noted that each of these options had different costs and benefits. For example, appointing a second active manager would increase the diversity of the portfolio and potentially lead to higher returns, but it would also increase management fees. Similarly, while the London CIV’s existing manager had underperformed recently, there were potential cost savings associated with investing through the CIV.

After considering the various factors, the Committee decided to proceed with a tender process to appoint a second active emerging market equities manager. The Committee set out a number of criteria that it would use to evaluate potential managers, including performance, fees and Environmental, Social and Governance (ESG) credentials.

The Pensions Committee then considered a report on impact investing. At its previous meeting, the Committee had resolved to allocate 5% of the Pension Fund's assets to impact investments.

That, with regard to the other impact themes for its 5% allocation, officers to seek out a broader range of institutions and organisations who may have routes to the inclusive economy, especially those in London and the south east.
Extract from the minutes of the meeting of Islington Council's Pensions Committee, held on 11 March 2024. The extract refers to a discussion of the Committee’s plans to allocate 5% of the Pension Fund to impact investments.

The Committee discussed a range of impact investing themes, including:

• Inclusive economy: Investing in businesses and organisations that create jobs and opportunities for people from disadvantaged backgrounds;
• Biotech and life sciences: Investing in businesses and organisations that are developing new technologies and treatments in the areas of biotechnology and life sciences;
• Climate change: Investing in businesses and organisations that are developing solutions to climate change; and
• Social housing: Investing in businesses and organisations that are providing social housing.

After a lengthy discussion, the Committee agreed to adopt a two-pronged approach to impact investing:

1. Mainstreaming: The Committee agreed that social impact themes should be mainstreamed into existing asset classes, including up to 3% of the allocation to the “Biodiversity and Natural Capital theme” proposed by Mercer. This means that, when making investment decisions across all asset classes, the Pension Fund will consider the social and environmental impact of those investments, as well as financial returns.
   
2. Specialist impact investments: The Committee agreed to allocate up to 2% of the fund to specialist impact investment funds. These funds will invest directly in businesses and organisations that are having a positive social or environmental impact.

The Committee also agreed to receive a further report on impact investing at its next meeting.

London CIV Update

The Pensions Committee received an update from the London CIV, covering:

• A new appointments to the CIV's investment team;
• The performance of the CIV's funds;
• The launch of new funds, including a private credit fund; and
• Operational updates, such as fee modifications.

The Committee noted the update and asked officers to continue to monitor progress at the London CIV.

Pensions Committee 2024/25 Forward Work Programme

The Pensions Committee noted the proposed work programme for the 2024/25 municipal year, which included items such as the annual report, the funding review, and a review of investment consultancy services. The Committee also discussed potential training topics for members, with a focus on climate change, biodiversity, social impact, and governance.