The Pensions Committee of Bromley Council met on Wednesday 28 May 2025 to discuss the performance of the Pension Fund and receive a presentation on global equity passive management. The committee noted the Pension Fund's performance for Q4 2024/25, received the Local Pension Board Annual Report, and heard from Legal & General Investment Management.

Presentation from Legal & General Investment Management

The committee received a presentation from Legal & General Investment Management representatives, including James Sparshott, Head of Strategic Client Team: Asset Management, Ryan Boothroyd, Senior Investment Specialist, and Stefan Bilby, Head of Index Distribution. The presentation focused on global equity passive management, an investment area not currently utilised by the Bromley Pension Fund.

Councillor Keith Onslow, Chairman of the Pensions Committee, noted that global equity passive management is an active form of investment, allowing investors to build bespoke portfolios by choosing from thousands of indices. He highlighted the potential for lower fees, at just over 2 basis points, and the option to carry over existing stock holdings to reduce transfer costs. Legal & General Investment Management offered to conduct a costing exercise for the Bromley Pension Fund to assess the financial implications of such a transfer.

Concerns were raised about the concentration of indices towards United States technology stocks and the potential impact of political volatility. The Senior Investment Specialist explained that while some investors are reappraising their US market exposure, significant shifts are not expected in the short to medium term. He emphasised that the diversified approach of global equity passive management mitigates risks by avoiding over-concentration in any particular region, sector, or stock.

The discussion also touched upon the risks associated with a broader investment approach, particularly concerning global events and emerging markets. It was clarified that systematic risk, inherent in the overall market, cannot be avoided, but non-systematic risk, specific to an asset class or security, can be mitigated through diversification.

The Director of Finance inquired about the potential returns of UK versus global investment approaches in the medium to long term. The Senior Investment Specialist expressed a preference for a global approach, noting that while the UK market is cheaper, growth potential is more limited compared to the more dynamic, albeit more expensive, US market.

A member questioned whether the overall value of the Bromley Pension Fund could be eroded over a 10-year horizon if the investment strategy shifted from active equity management to a more diversified, low-volatility approach reliant on a single index fund. The Senior Investment Specialist opined that long-term equity investment with a focus on diversification and intelligent risk spreading is the best approach in a volatile market.

Regarding investor stewardship, the Head of Strategic Client Team: Asset Management explained that Legal & General Investment Management engages with companies to address risks and opportunities, scoring them on environmental, social, and governance (ESG) arrangements. This scoring system encourages companies to improve their performance and mitigate investment risk. The question of whether companies are scored for freedom of speech was raised but noted as not currently monitored.

The committee resolved to note the presentation from Legal & General Investment Management.

Pension Fund Performance Q4 2024/25

The committee reviewed the Pension Fund Performance report for Quarter 4 of the 2024/25 financial year. The report detailed general financial and membership trends, including early retirements, and outlined key developments expected in the Local Government Pension Scheme (LGPS) over the next five years.

Councillor Keith Onslow noted that the Bromley Pension Fund's value was approaching £1.5 billion. The triennial actuarial valuation was underway and expected to be completed in late Autumn 2025. The committee would also undertake a strategic asset allocation review, which would involve setting target allocations across asset classes and considering the overall investment strategy, including the merits of active versus passive investing.

A discussion arose regarding the London Collective Investment Vehicle (LCIV)'s appointment of Wellington to manage a value-based global equity portfolio, which is similar in style to the Bromley Pension Fund's existing investment with MFS. The Senior Advisor from Apex Group Ltd recommended against transitioning the MFS portfolio to the LCIV at this time, citing that the MFS portfolio better fits Bromley's requirements and has delivered stronger medium-term performance. This recommendation was supported by the committee, with an estimated transition cost of around £2 million.

An ongoing concern was raised about discrepancies between performance figures generated by the custodian and those provided by the investment manager. The Senior Advisor: Apex Group Ltd was requested to investigate this issue with the custodian and provide a report to the Pensions Committee in Summer 2025. If the concerns were not addressed, the custodian would be invited to the next meeting. Information on the procurement timetable for the custodian's service, whose contract had not been formally reviewed in recent years, would also be reported.

Regarding the current investment strategy, a recommendation was made to lower the weighting of multi-asset income funds from 20% to 15% due to lower-than-anticipated performance. The Senior Advisor confirmed that cash flow would remain sufficient with this reduction. The committee supported this proposed reduction. The Chairman noted that the Fund's liquid cash flexibility had recently enabled a £90 million investment in Fidelity International's UK Real Estate Fund.

The Senior Advisor also recommended considering hedging 50% of the Fund's strategic asset allocation weighting to global equities back into sterling, due to significant US Dollar exposure and potential negative impacts from US Dollar weakening amid political volatility. However, concerns were raised about the timing and duration of such hedging, with a suggested minimum of 10 years. The operational complications and the need for a portion of the bond portfolio to be used as collateral for currency options were discussed.

A member expressed reservations about hedging at this time, particularly before the Strategic Asset Allocation review, and another member advised avoiding hedging due to a negative past experience by another London Borough. The committee was advised that existing investment managers only undertake hedging for fixed interest investments. The Chairman concluded that the committee's clear preference was not to commit to hedging in advance of the strategic asset allocation review.

A member raised concerns about the LCIV's request for £70,312 of additional B class Share Capital. The Chairman advised that this payment was required to comply with Financial Conduct Authority regulations. Councillor Simon Fawthrop moved that the LCIV's request be refused, but this motion was seconded by Councillor Michael Tickner and subsequently fell.

The committee resolved to note the contents of the report and appendices, including quarterly performance monitoring, key developments in the LGPS, the LCIV's strategic development plan, updates on contracts, the triennial valuation being carried out by Mercers, and the request for Apex Group Ltd to carry out the next Strategic Asset Allocation review.

Local Pension Board Annual Report

The committee received and resolved to note the Local Pension Board Annual Report 2024/25¹. This report, approved by the Local Pension Board on 12 May 2025, summarises the Board's work over the past year, details areas of concern identified, and outlines training undertaken by Board members.