Agenda item

Meeting was informed that in light of the Ukraine Russia War, the combined fund performance has been negative during the last quarter, however looking over the 12 month period it is positive and ahead of the bench mark .

Members were reminded that in general the fund is doing better in comparison to previous years.

Members were informed that officers had received notification that following the takeover of BMO by Columbia Threadneedle ,there is likely to be possible merger of the BMO emerging market portfolio with a third party called Poland Capital, details which will be reported back to Committee in September.
 

On the question of whether despite 3 years of extraordinarily levels of economic instability if the Council’s mix of investment is vulnerable in comparison to other local authorities government, the meeting was advised that committee will have the opportunity to compare Islington against other local authorities when a standard report is considered at the September meeting.

In response to concerns about the BMO fund and the possibility of termination going forward, meeting was advised that there were no issues with the emerging market and frontier market but the issues were more specific to the circumstances of BMO itself and not the emerging market universe.

Karen Shackleton of MJ Hudson in summary highlighted the various performance of the fund managers as highlighted below-

In-house Passive portfolio

No performance issues, however members to note fund will be transitioning into a Paris Aligned fund over the summer as it is nearly at the end of this particular mandate

M& G- Alpha Opportunities Fund

Relatively new allocation and proceeds of equity protection strategy has gone into this fund, it is a low risk fund designed to protect capital and although it made a small loss during the quarter of -1.6 % this was due to its exposure to financial corporate bonds . Members to note that there was a mistake in the report, that the last paragraph under portfolio characteristics should be amended to read ‘ Schroders intend to remain energy positioned’ rather than defensively positioned

LCIV Global Equity Fund Newton

Chart 3 shows how managers do well in certain environments and less on others and it shows Newtons have had a long period of underperformance, followed by a much better performance in quarter 1 of 2020, however unfortunately it is beginning to tail off and presently experiencing underperformance relatively to the benchmark and certainly below their performance. Committee were advised that this is a fund manager that Islington is paying to outperform but are actually underperforming for over 3 years, that it is a defensive portfolio which is good in a time of volatility but this is something to monitor. Members were reminded that the fund manager has a thematic approach, which changes slowly over time, that their focus at the moment is Net effect impact of technology and healthy demand, affordable health care of the elderly, noting that these themes have not played out well in the last quarter.

LCIV Sustainable Equity fund

The fund has experienced one of its worst quarters in performance as the market responds to the Ukraine crisis and there was a flight to safety and move away from the sort of companies that RBC favours, the market environment did not suit their style.

In comparison to others in the Peer group, London CIV has done some analysis and conclude that over the long term they are still doing well, however this year has been particularly challenging.

In terms of its carbon intensity, it is up to 80% which is a lot higher than Newton and this is because it invests in companies that are still committed to the climate transition, however members should note that it does not align with Islington’s climate goals

BMO/ LGM

The emerging market portfolio is underperforming by 3.9% per annum over 3 years. Although BMO has systemic performance issues and in light of the news with regards to CT’s agreement with Poland Capital, a US fund manager, members will be briefed at a future meeting when there is more details available.

Standard life - Corporate Bond Fund

Performance has been good for quite sometime, however in relation to its benchmark it has not been delivering according to the funds objective. Members were reminded that this is being used to fund infrastructure portfolio.

Aviva Investors

The lime property fund has delivered and is focussed on inflation linking andover 3 years the fund has returned 8.61% per annum which is considerably above the gilt edge benchmark, so no concerns raised as it is delivering the fund objective. A point to note is they are joining the Association of Real Estate Funds (AREF) UK Long income open ended property fund index

Columbia Threadneedle

Over 3 years they have underperformed by 2.5% per annum, however it appears performance has tailed off since the fund manager left the organisation so there is a little bit of concern of how the new manager is bedding in . Members are advised that this may be a case to  leaving a bit longer before decision is taken.  Officers will be watching for signs of improvement over the long term.

Legal and General Investment Manager

They continue to track their respective indices closely, that no issues with their performance, however just to note that the Ukraine / Russian crisis has led to energy prices increasing so the low carbon index has actually underperformed in the capital index market.

Franklin Templeton

In comparison to other property managers historically Franklin Templeton’s performance has increased over the previous 3 years but it is noticeable that Aviva is delivering the highest return. Not particularly concerned as Fund 1 is in its harvesting stage and returning monies back to council and most of their funds are ahead of target however there are two that are below expectations and are fully liquidated. Fund 2 is fully invested and 5% of funds is being distributed back to council with 3 funds performing well ahead of expectations and 2 are below expectation.

Meeting was reminded that the council has recently committed to Fund 3 and although its early days it is distributing, 3 of which are in line with expectations and 3 are too early to assess at this stage.

Hearthstone

Fund has underperformed the IPF index which is a commercial property index and a little bit disappointing.

Schroders

Diversified growth fund, still continues to have performance issues and to note that the bench mark has changed and is now the ICE Sterling 3 month index plus 4 so there are no RPI targets

The carbon density of that fund is 34% less than its comparators.

Quinbrook

Representatives at meeting to present their case to committee.

Pantheon

Performance is looking reasonable, noting that the private equity fund could do a little better but no major concerns at this stage

Permira

No new information on this fund manager but just for noting

In response to a question, Karen stated that any portfolio that is investing sustainably is likely to be more vulnerable in an environment where energy prices are increasing.

Member enquired whether there is a lag between inflation and returns expected from the Council’s investment and was also particularly concerned with the London CIV investment as it consistently underperforms stating that this should be kept under review and if possible consider alternative options.

In response, Karen advised that there is some protection against inflation for example the Aviva portfolio, noting that the other way is by investing in index gilts which are very expensive.

Alex Goddard of Mercer reassured the committee that compared to other schemes Islington has  high strategic allocatiomandates, where there is some degree of linkage to inflation. Islington has a 25% strategic allocation to property which is very resilient to inflationry environment, noting that one should expect some exposure to infrastructure such  as Renewable energy as well, stating that Islington is well placed to be resilient to inflation in comparison to their peers

In response to a question on whether there was any area of particular concern, Karen Shackleton reiterated that there is nothing major except the LGM/ BMO transition to Poland capital, suggesting that before a decision is taken they may want to wait for another cycle as more information is required.

RESOLVED:

(a)  That the performance of the Fund from 1 January to 31 March 2022, as per the BNY Mellon interactive performance report and detailed in the report of the Corporate Director of Resources, be noted.

(b) That the presentation by MJ Hudsons, on fund managers’ quarterly performance, attached as Appendix 1 to the report, be noted.

(c) To note the LGPS Current Issue - May’22 for information, attached as Appendix 2.

(d) To receive a presentation from Quinbrook (our renewable infrastructure manager) on current performance and activities and projected cashflow

(e) To consider a re-commitment to their next global fund, Net Zero Power Fund, as per asset allocation i.e. 4% of the whole Fund

(f) Subject to 2.4.1, to delegate responsibility to Officers to complete any due diligence, subscription and legal documentation.