Investment and Stewardship

 

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 2021

Investment Assets   2021 2020 Change Bonds █ 4.6% 6.3% -1.7% Equities █ 13.4% 13.8% -0.4% PIVS █ 66.2% 62.2% +4.0% Property PIVs █ 4.8% 5.8% -1.0% Derivatives █ 0.3% 0.4% -0.1% Property █ 2.4% 2.8% -0.5% Other █ 2.2% 2.4% -0.2% Private Equity █ 3.7% 3.7% -0.1% Cash deposits █ 2.3% 2.2% +0.0% Other balances █ 0.2% 0.3% -0.1% Total   100.0% 100.0%
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Asset allocation charts based on aggregated Net Asset Statements as at 31 March 2021

Asset class	Asset type		£000s	%	£000s	%
Bonds	Bonds	█	15,546,853	4.6%	15,546,853	4.6%
Equities	Equities	█	45,882,537	13.4%	45,882,537	13.4%
PIV	PIV	█	225,874,363	66.2%	225,874,363	66.2%
Property PIV	Property	█	16,377,455	4.8%	24,397,029	7.2%
Property direct		█	8,019,574	2.3%
Other	Other	█	29,623,773	8.7%	29,623,773	8.7%
Total					341,324,555	100.0%

Total asset allocation
	Other asset allocation

Asset class	Asset type		£000s	%
Other	Cash Deposits	█	7,688,587
	Private equity	█	12,491,755
	Other balances	█	753,603
	Other (including aggregated private equity/infrastructure/other)	█	3,248,276
	Infrastructure	█	4,366,694
	Derivatives	█	1,074,858
Total			29,623,773	100.0%

Net return on investment based on aggregated Fund accounts year to 31 March 2021

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 2021 was +21.1% (2020 -4.4%). The average investment expenses were 0.5% over the period (2020 0.4%), therefore the net return on investment was +20.7% (2019 -4.8%).

The above chart shows the distribution around 21%, for 2021 █, with most funds falling in a range of between 15% and 28%. For 2020 █ the distribution was around -6%, with most funds falling in a range of between -2% and -6%.

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 £230bn. 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

It was almost as though equity markets worldwide had barely noticed that COVID was locking down most of the world and changing consumer behaviour and working patterns in ways not previously imagined. With an average result of just under 40% equity returns reclaimed the lost performance of 2019/20 and much more – over the last two years they delivered an average return of 11.4% p.a. - well ahead of even the most optimistic forecasts.

 

The speed and scale of the equity market rebound in 2020 resulted in the best annual return since the post global financial crisis in 2008/9. This brought long term performance back in line with funds historic experience. Over the last thirty years there have only been three periods of negative returns, of which the latest was the shallowest and shortest. 

In the latest year UK Equities delivered a return of 30%. This was ahead of the All-Share index by some 3%, a second good year for active managers. However the market return was well behind that which was achieved elsewhere. Funds that retained a high commitment to the domestic equity market would have underperformed their peers. The proportion of UK equities in the average fund continues to decline. This is not just as a result of poor relative market performance but also due to a strategic move into a global allocation of equities.

At the end of March 2021 the level of equity assets managed passively was 26%, down from 30% at the end of the previous year. This difference is due to the outperformance of active managers last year. In 2020 the median global active equity Manager performance was 2.2%, broadly in line with the equivalent measure this year. However in 2020 the upper quartile (top 25%) outperformed by 4%. This year the outperformance is more than twice that level.

Bond returns were mixed – multi asset credit funds had performed badly in the COVID induced market panic of the first quarter of 2020 but have performed well in the latest year and more than recouped their losses. Funds that held bond portfolios benchmarked against government bond indices performed relatively poorly relative to those benchmarked against an absolute return.

While private equity continued its run of exceptional performance and hedge funds had an equally strong year, private debt fared less well. Infrastructure, one of the sectors most impacted by the global lockdown, performed poorly. It delivered a return of 1% for the year.

At the end of March 2021 half the funds in the Universe had some investment in bespoke low-carbon / climate aware equity vehicles. This represented 11% of all equity investment.