The Pensions Advisory Panel of Southwark Council met on Monday 30 September 2024 to review the fund's financial performance, operational updates, and policy developments. Key discussions included the fund's asset allocation and net-zero strategy, an update on pension services administration, and the adoption of a new Equality, Diversity, and Inclusion policy.

Asset Allocation and Net Zero Strategy Update

The Panel received an update on the Southwark Pension Fund's asset allocation as of 30 June 2024. The market value of the fund increased to £2,257.8 million, an increase of £18.9 million. The report detailed the breakdown of assets by class, noting that the fund remained overweight in equities and ESG Priority Allocation mandates, while underweight in government bonds, multi-asset credit, and property. The Panel noted that the fund's overall performance for the quarter was 1.1%, which lagged the benchmark of 1.9%. For the year ending 30 June 2024, the fund returned 9.7%, also below the benchmark of 13.4%. The report also highlighted ongoing activity related to the Local Government Pension Scheme (LGPS) Next Steps on Investments, including government proposals to accelerate asset pooling and increase investment in UK assets. The Panel was informed of a call for evidence regarding the Pensions Investment Review, focusing on boosting investment and tackling waste in the pensions system.

Pension Services - Administration and Operational Update

An update was provided on the administration and operational functions of the pension services. Recruitment within the fund administration team was reported as stable, although some vacancies remain. Progress was noted on IT systems, including a cyber risk assessment and an ongoing HealthCheck with the pensions administration provider. The National Pension Dashboard programme remains on track, with Southwark Council's connect by date unchanged at 31 October 2025. The report detailed the completion of the 2024 Annual Benefit Statement exercise for various member groups and the ongoing preparation of Pension Savings Statements. A re-modelled Southwark Pension Fund website is due to launch soon. The update also included a list of recent complaints and their management, with several cases still open with the Pensions Ombudsman. Performance metrics for administration tasks between June and August 2024 were also presented, showing high achievement rates for most key performance indicators.

Multi-Asset Credit Update

The Panel was asked to ratify a decision made at a special meeting on 4 March 2024 to appoint LCIV (Alternative Credit Fund) as a multi-asset credit manager with a £100 million allocation. This decision aligns with the agreed 10% strategic allocation to multi-asset credit. The LCIV Alternative Credit Fund, managed by CQS, was noted to provide diversification and complement the existing Robeco allocation, aligning with both financial objectives and net-zero aspirations. The allocation was made on 28 March 2024, funded by the divestment of the fund's absolute return bond holding.

Advisors' Updates - Quarter to September 2024

David Cullinan, the independent adviser, presented his investment report, and Colin Cartwright from Aon presented the quarterly investment dashboard. These reports provided an overview of market conditions and fund performance. The market outlook indicated improved economic conditions, with equities responding positively while bond markets weakened. The fund's performance over the quarter was noted as 1.1%, lagging the benchmark. Longer-term returns were described as solid, ahead of inflation and actuarial assumptions, but behind the benchmark. The advisors highlighted that the near-term market environment remained challenging due to political tensions.

Carbon Footprint Update - 30 June 2024

The Panel received an update on the fund's carbon footprint, showing a continuing improvement. Since September 2017, the fund has reduced its weighted carbon intensity by approximately 83%. The reduction in the quarter was attributed to improvements in developed market equities, Nuveen's decarbonisation initiatives, and Newton Global Equity's engagement with portfolio companies. An increase in the carbon intensity of the Comgest portfolio was noted due to a recent investment in SK Hynix, with Comgest engaging with the company to address this. The report also detailed the unweighted carbon intensity of various asset classes and confirmed that approximately 92% of the fund's total investment was in Zero Carbon, Low Carbon, and Reduced Carbon investments.

Update on Approach to Engagement and Voting

This report summarised the fund's engagement and voting activity for the quarter ended 30 June 2024. Key engagement themes across listed assets included climate change, environmental risk, human rights, employee diversity, and board quality. The report detailed the engagement and voting activities of LAPFF (London Pension Fund Authority Forum), Comgest, Newton, LGIM, and BlackRock. The fund intends to adopt a more proactive approach to engagement and voting, exploring pass-through voting for pooled equity assets and providing specific guidance to fund managers to align with strategic priorities.

Equality, Diversity, and Inclusion Policy

The Panel was asked to review and agree a standalone Equality, Diversity, and Inclusion (EDI) policy for the fund. This policy was developed in response to guidance from The Pensions Regulator (TPR) and aims to reinforce the fund's commitment to EDI in its internal and external operations. The policy covers the scope and aim of the policy, definitions of EDI, initiatives to be taken, monitoring progress, and reporting. It applies to the fund's governance structure, management, and external stakeholders. The policy was drafted internally and reviewed by Aon, with amendments made based on feedback. The Panel agreed to the policy, subject to benchmarking.

Pension Fund Statement of Accounts & Audit Findings Reports 2021-22 and 2022-23

An update was provided on the audit of the pension fund statement of accounts for the financial years 2021-22 and 2022-23. Grant Thornton issued an unqualified opinion on both sets of accounts. The Audit Findings Reports detailed matters arising during the audits, including recommendations for management. Key adjustments identified during the audits related to level 3 investment valuations. The report also outlined management responses to the recommendations, including ongoing work on the UPM system for report generation and a commitment to obtaining annual actuarial liability figures. The Panel noted the audit findings reports.

Training Session - Local Government Pension Scheme Pooling Update

Tracey Milner, the Interim Pension Investments Manager, provided training on the LGPS pooling update. The Chair requested that this topic become a standing item on future agendas.

Update on the Local Pension Board

Mike Ellsmore, Chair of the Local Pension Board, provided an update on the board's recent meeting. Discussions included the LGPS pooling mandate, compliance with the General Code of Practice, pension services, cyber security, and audit findings. The Panel noted the update.

Exclusion of the Press and Public

The Panel resolved to exclude the press and public for specific items of business relating to quarterly investment updates, actuarial funding, and stewardship code applications, as these involved the likely disclosure of exempt information.