The Dyfed Pension Fund Committee met on Tuesday 14 July 2026 to discuss a rebalance proposal for the fund's investments and to review its strategic asset allocation. The committee approved a proposal to rebalance the fund's assets by selling equities and investing in credit and cash, and also approved a revised strategic asset allocation, opting for Option B which includes introducing index-linked gilts and a small cash allocation.

Rebalance Proposal

The committee considered a proposal to rebalance the Dyfed Pension Fund's investment portfolio. The fund was noted to be significantly overweight in equities, with an estimated allocation of 70.9% as of June 2026, exceeding the Strategic Asset Allocation (SAA) tolerance range of +/- 10% around the target of 60%. The independent investment advisor, Adrian Brown, recommended selling £170 million of equities. This would be reinvested as £130 million into WPP Global Credit and £40 million into cash.

The arguments for this rebalance included reducing equity risk, particularly given current high equity market valuations and geopolitical risks. Investing in credit was seen as a more stable asset class that could also generate additional income, which is beneficial as member contributions have recently reduced. The cash allocation would provide a buffer to fund upcoming capital calls for private market investments in infrastructure and private debt.

The proposal was seconded by Councillor Philip Warlow and unanimously approved by the committee. The rebalance is subject to review and potential support from the Pension Board.

Strategic Asset Allocation Review

The committee then reviewed the Dyfed Pension Fund's Strategic Asset Allocation (SAA) following its triennial actuarial valuation. The review, conducted by Mercer, assessed the current strategy and proposed alternative portfolios to optimise risk and return.

Mercer presented four options (A, B, C, and D), with Option B being recommended by officers and supported by Mercer. Option B involves a modest reduction in the equity allocation from 60% to 57.5%, a decrease in property from 15% to 13%, and a reduction in other alternatives from 5% to 4%. These changes would fund the introduction of a 5% allocation to index-linked gilts and a 0.5% allocation to cash.

Key arguments for Option B included:

• Reduced Risk: While maintaining a high probability of achieving the past service discount rate (CPI + 2.7%), Option B reduces the Surplus at Risk (a measure of potential funding level decline) by approximately £54 million compared to the current SAA.
• Attractive Opportunity in Gilts: Index-linked gilts were highlighted as an attractive investment due to historically favourable real yields, offering inflation linkage and diversification benefits.
• Improved Cashflow: The introduction of index-linked gilts is expected to increase the fund's income generation, helping to offset the net benefit outgoings and providing greater liquidity.
• Contribution Stability: Option B increases the likelihood of maintaining current contribution rates over the next three valuation cycles.

The committee discussed the implications of the Fit for the Future regulations, which delegate the implementation of the investment strategy to the Wales Pension Partnership (WPP) Investment Management Company (IMCo). This means the committee's primary role is to set high-level objectives, such as return targets, risk budgets, and cash flow requirements.

The committee unanimously approved Option B as the new strategic asset allocation. The next steps involve updating the Investment Strategy Statement (ISS) and working with WPP IMCo to implement the agreed strategy, particularly regarding the introduction of index-linked gilts.