This meeting was about the performance and administration of the London Borough of Bexley Pension Fund in the second quarter of the 2024/25 financial year. It also included discussions on the fund’s investments, and its exposure to Israel and the Occupied Territories, the latest update on the McCloud remedy, and consideration of the government's new proposals for the Local Government Pension Scheme (LGPS) following the Chancellor's recent Mansion House speech.

Exposure to Israel and the Occupied Territories

The meeting was to include a discussion on a motion submitted by the Bexley Palestine Action Group calling on the council to divest from companies associated with the ongoing conflict between Israel and Palestine.

The council's report on the matter says the group is urging the council to divest from various stocks associated with enabling the arming of the conflict, including those domiciled in Israel, and others around the world.

The Bexley Palestine Action Group claims that the Bexley pension fund has invested in companies domiciled in Israel, as well as other global stocks that are aiding and assisting Israel’s alleged breaches of international law.

The council says that as of the end of October, it had direct exposure of £361,000 to Israeli government bonds, representing 0.03% of the pension fund's assets under management, which it says were held in pooled funds. The report says that these bonds are due to mature at the earliest during 2026.

The report says that the fund also had £313,000 of investments in companies such as Booking.com, Altice and Expedia, which the Bexley Palestine Action Group are alleging are also involved in the conflict. These investments also represent 0.03% of the fund's assets under management.

The council’s report goes on to say that its investments are made in line with its fiduciary duty to act in the best interests of its members.

It says that investment decisions should be based on financial factors such as value, risk and yield, and that they should not be influenced by the political views of committee members.

The report also cites the Pensions and Lifetime Savings Association, which it says has found that pension schemes should only take non-financial factors into account where they are financially material.

The report concludes by recommending that the committee should not divest from any of its current investments, and should instead continue to encourage positive change on all ESG (Environmental, Social and Corporate Governance) factors.

Quarterly Administration Report

The meeting was to receive a report on the administration of the Bexley Pension Fund for the second quarter of the 2024/25 financial year.

This report says that the London Pensions Partnership Administration (LPPA), which administers the fund, achieved an overall performance of 98.3% against agreed service level agreements during the quarter.

LPPA’s overall operational casework performance was 98.3% against Service Level Agreements (SLAs) for the quarter.

The only type of request that fell short of its target was Retirements from Active membership, which achieved 93.5% performance against a target of 95%.

The report also says that LPPA is coordinating the implementation of the Pensions Dashboards, which are scheduled to go live for public sector schemes on 31 October 2025.

It says that work has been underway for several months, including looking at the technical connectivity, and that LPPA is expecting to provide an update on its data cleanse in the coming weeks.

The report says that an initial reconciliation of data from Prudential, the fund's Additional Voluntary Contributions (AVCs) provider, is about to commence.

The report says that LPPA intends to meet the dashboards' data matching requirements using members' surnames, dates of birth and National Insurance Numbers.

The report goes on to discuss a data cleansing exercise that is being carried out to ensure the accuracy of data held on employers.

Finally, the report provides an update on the accessibility of the LPPA website and its communications.

It says that the website currently meets Web Content Accessibility Guidelines and that work is underway to obtain the Plain English Campaign’s Crystal Mark accreditation for its communications.

The report says that retirement communications have already received the accreditation, and that work is continuing to achieve this for all member communications.

Fit for the Future – LGPS Pensions Review

The meeting was to consider the implications for the fund of the Labour Government's recently announced plans to reform the Local Government Pension Scheme.

The council’s report says the government's proposals are set out in a consultation document, which includes reforms to asset pooling, UK and local investment, and governance.

The report describes the government’s objective for the LGPS to adapt to future challenges and become a powerful global and local investor.

The government believes that, to deliver successfully for members and employers, all the pools will need to develop further as powerful global and local investors, able to deliver strong performance, value for money and resilience over the long term.

It goes on to describe the government's view that the current eight LGPS asset pools – which manage around £178 billion of the scheme's £392 billion of assets – vary in their size and in the extent to which their partner funds have pooled their assets, and that they will need to adopt a new operating model to ensure their long term success.

It says that the government is proposing the following minimum standards for LGPS asset pools:

• Administering Authorities (AAs) would set a high-level investment strategy for their funds, with implementation fully delegated to the pools.
• AAs would be required to take principal investment advice from their pool.
• All listed assets to be transferred by 31 March 2025, and all legacy assets transferred to the management of the pool company by 31 March 2026.
• Pools to develop capabilities to manage and carry out due diligence on local investments.

The report also says that the government has ambitions to encourage greater investment in local communities, and is proposing a requirement for AAs to set out their approach to local investment in their investment strategy, including setting a target for the proportion of the fund to be invested locally. It says that AAs would also be required to take account of local growth plans, and to work with relevant authorities such as combined authorities and the Greater London Authority (GLA) to identify local investment opportunities.

The report says that the government is also proposing to reform fund and pool governance, and is setting out a number of proposals to enhance the capability of the LGPS.

It says that the government is proposing a requirement for AAs to appoint a senior LGPS officer with overall delegated responsibility for the management and administration of the fund, to prepare and publish a governance and training strategy, including a conflict of interest policy, and to prepare and publish an administration strategy.

The report concludes by recommending that the committee should note the government's proposed reforms, and should provide its comments on them. It says that a full response to the government's consultation will be prepared and circulated to members.

Quarterly Financial and Fund Management Update – 30 September 2024

The meeting was to receive an update on the fund’s finances, and its approach to risk management, for the quarter ending 30 September 2024.

The report on these matters says that as of the end of September, the total balance across all of the fund's bank accounts was £13.2 million, and that the balance on its main bank account was £2.9 million. It says that the fund is holding a further £10.4 million in cash in its custody account held with Northern Trust. The report includes a cashflow forecast, which shows that the fund is expected to hold sufficient cash to cover its liabilities throughout the remainder of the year.

The report goes on to review the fund's principal risks. It says that the five most significant risks to the fund are:

• Geopolitical and economic uncertainty, including instability in Russia and Ukraine and in the Middle East.
• Investment managers or pooling operators failing to achieve their performance targets.
• Increased scrutiny of environmental, social and governance (ESG) issues, leading to reputational damage.
• Implementation of proposed changes to the LGPS, in particular asset pooling, not conforming to plan or being achieved within agreed timescales.
• Global investment markets failing to perform in line with expectations, leading to a deterioration in the fund's funding level and increased contributions from employers.

The report provides an update on the fund's assets held by the London CIV. It says that as of 30 September, 55% of the fund’s assets were held in pooled investment vehicles. If passive holdings are included, this rises to 70%.

The report says that the fund’s holdings in LCIV funds include:

• The LCIV Global Equity fund, which is managed by Newton Investment Management.
• The LCIV Sustainable Equity fund, which is managed by Royal Bank of Canada.
• The LCIV Global Bond fund, which is managed by PIMCO.
• The LCIV Multi Asset Credit (MAC) fund, which is managed by PIMCO and CQS.
• The LCIV Infrastructure fund, which is managed by StepStone Group.
• The LCIV Inflation Plus fund, which is managed by Aviva Investors.
• The LCIV Renewable Infrastructure fund.

The report concludes by saying that the fund is in a strong financial position.

Pension Fund Investment Performance – Quarter ended 30 September 2024

The meeting was to consider the investment performance of the fund over the three months to the end of September 2024. The council's report on this matter says that the fund achieved a return of 1.63%, compared to 1.43% for the benchmark.

It says that the total value of the fund's assets at the end of September was £1.041 billion, which was an increase of £10.05 million (0.98%) compared to the end of June. It says that the main driver of this increase was the strong performance of the fund's fixed income assets.

Most asset classes have shown an increased valuation since the last quarter, most notably a strong performance in fixed income.

The report notes that the value of the fund's investment in renewable infrastructure increased due to capital calls from the London CIV. The report explains that this is in line with expectations for the strategy, which is to deploy capital over a number of years.

The LCIV Renewable Infrastructure Fund has been active for three plus years and the drawdown rate since Bexley’s investment has been circa 4.2% per quarter. LCIV estimates that, at the current rate, it will take another 2.4 years for Bexley to be fully drawn down (in line with LCIV’s expectations for greenfield strategies and the macro-economic backdrop).

The report also notes that the value of the fund's investment in the Aon Liquid Credit fund reduced because it was drawn down upon to meet liquidity requirements.

AON credit fund (liquid credit) was drawn down upon to meet liquidity, hence, the sharp decrease in valuation.

The report includes a table and graph showing the fund's current and target asset allocations. This shows that as at the end of September, the fund was overweight equities and underweight bonds.

The report concludes by saying that the fund remains in a strong position, despite the ongoing volatility in global investment markets.