The Surrey Pension Fund Committee approved the Surrey Pensions Team's strategic plan for 2024-2025, a new training policy, and the budget for 2024/25. It also agreed to delegate to the Chair the final approval of the Fund’s application to become a signatory of the UK Stewardship Code, and noted a report on the Fund’s investment performance.

Investment Performance

The funding ratio has fallen to 130%, down from 140% at the last meeting in December 2023. This is because of the fall in the discount rate used to value the liabilities. In absolute terms, it was a strong quarter for all asset classes as market participants changed their expectations about interest rates. Listed Alternatives have continued to disappoint this quarter. Global Alpha, one of the largest single mandates, has done better, and £267m was switched from Emerging Markets (previously held in a passive fund within LGIM) into an active fund managed by Border to Coast.

Training

The Committee approved a proposal for a residential training course for members to be held in October. This was deemed necessary due to the quickly changing regulatory, administration and investment landscape of the LGPS and to ensure compliance with the Stewardship Code.

MySurrey / Unit4

The Chair of the Pension Board reported that implementation of the MySurrey / Unit4 software was the main challenge for the Fund over the last nine months, particularly the administration system. There have been difficulties integrating Unit4 with the payroll system, and as a consequence some Surrey County Council employees have not been recorded as having joined the pension fund since June 2023. The Head of Service Delivery assured the Committee that work was underway to address the issue.

Credit Markets

The Committee considered a report by Anthony Fletcher, Independent Advisor at MJ Hudson, on the Fund’s investment in credit markets. Mr Fletcher made a number of recommendations, including that Border to Coast should review the benchmark for PGIM and demonstrate that it has the resources to provide an adequate level of analysis and oversight of the Fund’s investments. He was also critical of the level of reporting, commenting that the reporting package was below industry standard and let alone best practice .

“if we would have the report from Western I'd know what sizes were of the positions that they'd taken as they were going along I'd know the information ratio and how successful they are”

Border to Coast responded that they really do appreciate this independent oversight and will be conducting a more thorough review of the Multi Asset Credit Fund at its three-year anniversary. The Committee agreed to note Mr Fletcher’s comments and to ask Border to Coast to produce a report on these matters.

Fossil Fuels

A member of the committee raised concerns that the Fund may be indirectly invested in oil extraction from the Alberta Tar Sands, despite this being excluded under the Fund's policies. Border to Coast responded that the company in question is below the current exclusion threshold. The Committee requested that this be included in the review to be undertaken by Border to Coast.

The Committee also discussed its policy on engagement with fossil fuel companies. One member proposed that the Fund should divest from the 25 largest fossil fuel companies, but this was rejected. The Committee instead agreed to ask officers to include an assessment of the implications of excluding investments in these companies as part of the annual review of the RI Policy in June 2024.

Border to Coast Strategic Plan 2024-27

The Committee noted the shareholder approval of the Border to Coast Strategic Plan 2024-27.

UK Opportunities Fund

The Committee approved a proposal to invest in the Border to Coast UK Opportunities Fund, subject to the necessary conditions being met.

UK Real Estate

The Committee noted the development of the Border to Coast UK Real Estate proposition and asked officers to consider the appropriateness of this investment. A final paper for decision will be brought to the next meeting of the Committee.