The Teesside Pension Fund Committee met on 11 December 2024. The meeting discussed several items, including the performance of external managers, the Government's consultation on the LGPS, the Fund's administration, investment activity and the performance of directly held property.

Government Consultation - LGPS (England and Wales) Fit for the Future

The Committee received a report (Agenda Item 13) on the Government’s consultation Local Government Pension Scheme (England and Wales): Fit for the future. The consultation proposes reforms to make the LGPS fit for the future, including asset pooling, local investment and governance.

The Government proposes that Local Authorities would need to transfer all their listed assets to their pool by 31 March 2025 and legacy assets by 31 March 2026. The Committee discussed the challenges of this timetable, including the need for Pool companies to develop the capacity to manage these assets quickly.

The Government also proposes that Pool companies become the principal source of investment advice to Local Authorities, while still allowing Local Authorities to determine return objectives, risk tolerances, investment preferences, constraints and limitations.

Other proposals included a requirement for Local Authorities to set a target allocation to 'local investments', for Pool companies to conduct due diligence on local investments and for the adoption of the 'Good Governance' proposals from the 2001 review. These proposals include requirements for Pension Committee members to have appropriate knowledge and skills and for funds to appoint an independent pension professional to act as an advisor.

The Committee agreed that Mr Nick Orton, Head of Pensions Governance and Investments, would draft and submit a consultation response on behalf of the Fund, in consultation with the Chair and Vice Chair. Mr Orton will also work with Border to Coast Pensions Partnership and its other Partner Funds to provide a collective response.

Investment Activity Report

The Committee received a report (Agenda Item 6) on investment activity for the period 1 July 2024 – 30 September 2024.

The Fund continues to favour growth assets over protection assets. For the period in question bonds were still not considered value for the Fund and the Fund had no investments in bonds at this time.

The report noted that the level of cash held by the fund as at the end of September 2024 was 5.97%, against a maximum agreed level of 20%.

The Committee noted that investment in direct property continues where the property has a good covenant, yield and lease terms. There were no purchases or sales in the quarter.

An amount of £34m was invested in alternative assets in the quarter. Alternative assets offer the Fund diversification from equities and bonds, but come with additional risks such as being illiquid, traditionally having costly management fees and being a slow process to invest in.

It was also noted that the Fund will disinvest from its holdings in State Street Global Advisors (SSGA) Passive Equity Funds. These funds are passively managed which means they attempt to track the performance of a particular market as closely as possible. The decision to disinvest was made for several reasons:

• Concern over a lack of liquidity within the Fund – 50% of the redemption proceeds will be kept as cash;¹
• To reduce the overweight in equities;
• To further comply with the Government's directive of pooling assets by 2025 – 50% will be transferred to the Border to Coast Overseas Developed Equity Fund; and
• A preference for active over passive management, given the positive track record of Border to Coast’s Overseas Developed Equity Fund.

In the quarter July – September 2024 the Fund redeemed £435m from SSGA funds, of which £330m was re-invested in the Border to Coast Overseas Developed Equity Fund with the remainder held as cash at the Fund.

External Managers' Reports

The Committee received a report (Agenda Item 7) which provided members with quarterly investment reports on funds invested externally with Border to Coast Pensions Partnership Limited and with State Street Global Advisors.

The Committee noted the performance of Border to Coast’s actively managed UK Listed Equity Fund, Overseas Developed Markets Equity Fund and Emerging Markets Equity Fund.

The Committee noted that State Street has advised that it has made further changes to its passive equity indices and is excluding additional sectors. The Fund was notified that from 18 December 2023 the benchmarks of the State Street Sub-Funds the Fund invests in are applying screens to exclude certain securities related to tobacco and thermal coal.

CBRE Property Report

The Committee received a report (Agenda Item 15) which provided an overview of the current property market and informed members of the individual property transactions relating to the Fund.

As of 30 November 2024, the portfolio comprised 34 properties located throughout the UK, with a combined value of £485.1m. This reflected an overall Net Initial Yield ² of 5.5%, and an Equivalent Yield ³ of 5.88%.

The portfolio comprises principally prime and good secondary assets. High Street retail, retail warehouse and industrial comprise 94% of the Portfolio by capital value. There are 91 demises and a total net lettable area of 2,751,651 sq ft.

The portfolio had a current gross passing rent ⁴ of £28,613,928 per annum against a gross market rental value of £27,578,437 per annum.

The weighted average unexpired lease term ⁵ was 8.9 years to the earlier of the first break or expiry and 9.6 years to expiry, ignoring break dates.

XPS Administration Report

The Committee received a report (Agenda Item 16) from XPS Administration (the Fund's third party administrator), which provided an overview of the administration services provided to the Fund.

The Committee noted that total membership of the Fund is 83,612 members and that membership continues to steadily increase. The Committee also noted that Active and Deferred Benefit statements were issued by the legislative deadlines.