Investment

 

Tier 2

Signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code.

Gwynedd Pension Fund

London Borough of Bexley Pension Fund

London Borough of Ealing Pension Fund

London Borough of Hillingdon Pension Fund

London Borough of Waltham Forest Pension Fund

Merseyside Pension Fund

Rhondda Cynon Taff Pension Fund

Somerset County Council

Investment allocation

Change in allocation chart based on aggregated Net Asset Statements year to 31 March 2019

Investment Assets   2018 2019 Change Bonds █ 6.7% 6.6% -0.2% Equities █ 28.5% 16.9% -11.6% PIVS █ 49.6% 60.7% 11.1% Property PIVs █ 4.9% 5.0% 0.1% Derivatives █ 0.2% 0.3% 0.1% Property █ 3.0% 3.1% 0.1% Other █ 1.6% 1.9% 0.3% Private Equity █ 2.6% 3.0% 0.4% Cash deposits █ 2.6% 2.4% -0.3% Other balances █ 0.4% 0.2% -0.1% Total   100.0% 100.0%
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Asset allocation charts based on aggregated Net Asset Statements as at 31 March 2019

Asset class	Asset type		£000s	%	£000s	%
Bonds	Bonds	█	19,052,552	6.6%	19,052,552	6.6%
Equities	Equities	█	49,043,980	16.9%	49,043,980	16.9%
PIV	PIV	█	176,257,758	60.7%	176,257,758	60.7%
Property PIV	Property	█	14,443,891	5.0%	23,337,897	8.1%
Property direct		█	8,904,006	3.1%
Other	Other	█	22,566,619	7.8%	22,566,619	7.8%
Total					290,258,806	100.0%

Total asset allocation
	Other asset allocation

Asset class	Asset type		£000s	%
Other	Cash Deposits	█	6,824,626	30.2%
	Private equity	█	8,731,743	38.7%
	Other balances	█	725,017	3.2%
	Other (including aggregated private equity/infrastructure/other)	█	1,766,877	7.8%
	Infrastructure	█	3,653,803	16.2%
	Derivatives	█	864,553	3.8%
Total			22,556,619	100.0%

Net return on investment based on aggregated Fund accounts year to 31 March 2019

Net return on investment % is calculated by dividing the net return on investment by the average value of the fund over the year - this differs from calculated performance.
The average return on investment, and total for the scheme on an aggregate basis, for the year ended 31 March 2019 was 6.6% (2018 4.4%). The average investment expenses were 0.4% over the period (2018 0.4%), therefore the net return on investment was 6.2% (2017 4.0%).

The above chart shows the distribution around 6.0%, for 2019 █, with most funds falling in a range of between 4.0% and 8.0%. For 2018 █ the distribution was around 4.0%, with most funds falling in a range of between 2.0% and 6.0%.

Investment Performance

The following market commentary was provided by Pensions & Investment Research Consultants Ltd (PIRC) based on their Local Authority Pension Fund Performance Universe.

This year’s peer group results is based on a Universe of 64 funds with a value of £193bn. This represents some two thirds of local authority pension fund assets and includes all of the Welsh and Northern Pools, all bar one of the London Pool, with funds from all other pools except Central.

LA Market Environment

There were many headwinds facing investors over the last year. Unease over historically high levels of markets, political uncertainty, the escalating trade war between the US and China and the ongoing unresolved issues around how, or even if, the UK would leave Europe all impacted sentiment and made for a volatile year. Despite this, over the fiscal year the average Local Authority pension fund returned a very respectable 6.6%. While this return is below the 30 year average (blue line in the chart below) of 8.4% p.a. it is well ahead of inflation and of actuarial assumptions which are currently around 4% p.a.

The latest year did not see a continuation of the dramatic reduction in equity exposure that had been in evidence in 2017/18 and high level asset allocation remained unchanged over the year as can be seen below.

There were however a number of changes beneath that which took place during the year. These included a move into ‘green’ investments across a range of funds, a continued investment into enhanced index / smart beta investments including low volatility and an increase in the level of passive equity investment. Bond investment became more diverse as funds invested into multi-asset credit, private debt and secured property income funds. The move into pooled assets began in a significant way which meant fund manager changes were well up on average. Interestingly fund complexity continued to increase.

Over the last ten years the average fund returned 10.8% p.a.. As can be seen below there was a large difference between the return generated by the funds that accepted the highest level of volatility and the funds that had structures their assets to reduce this aspect of risk. The most volatile fund achieved a return 41% better over the period than the least volatile.