Agenda item

Strategic Asset Allocation (SAA) Review 2019

Report of Director of Corporate Services and Hymans Robertson

Minutes:

The Committee were informed that, at its meeting on 3 December 2019, the Pensions Panel received a report from Hymans Robertson LLP (Hymans) outlining the activity that had taken place in reviewing the Staffordshire Pension Fund’s SAA.

 

In order to assess the appropriateness of the high-level strategy, i.e. the balance between return seeking assets (e.g. equities) and defensive assets (e.g. bonds), Hymans had carried out Asset Liability Modelling (ALM). This was done in conjunction with the Hyman’s Actuarial team, ahead of the 2019 Actuarial Valuation of the Fund. The aim was to ensure that varying investment strategies and the assumptions made about investment returns in each of those strategies could be factored into the Valuation assumptions; which in turn would be used in setting future levels of Employer contributions. The review was carried out with additional input from Advisors and Officers of the Fund.

 

The results of the ALM were presented to the Pensions Panel at its meeting in June 2019. They concluded that the current investment strategy provided a good chance of meeting the Fund’s long-term funding objectives based on the current levels of contributions being paid. And whilst there may be some scope for modest reductions in the Fund’s investment risk in the future, this was not being advocated at the current time.

 

Having established that the high-level strategy remained appropriate, the next stage of the review was to consider the detail of the asset allocation and the various mandates in operation. It was considered important to do this with regard to the objectives of asset pooling and the likely investments that would be offered by LGPS Central Limited.  Hyman’s recommendations are summarised in the following table as the likely ‘direction of travel’ for the Fund over the next 2-3 years, as it moves from its Current Benchmark towards its Long-Term Benchmark. Further discussions may need to take place in relation to the detail around several of the proposed changes.

 

Asset Class

Mandate

Current Manager

Current

Benchmark (%)

Long Term

Benchmark (%)

UK Equities

Active

Aberdeen

Standard

6.25

5.0

 

UK Equities

Passive

Legal & General

6.25

5.0

 

Global Equities

Active

Longview,

JP Morgan

LGPS Central Ltd

23.0

25.0

Global Equities

Passive

Legal & General

24.0

20.5

 

Global Equities (Factor Based)

Passive

TBC

5.0

5.0

 

Private Equity

Active

Various

3.5

3.5

Total Equities

 

 

68.0

64.0

Property

 

Colliers

10.0

10.0

Private Debt

 

Various

5.0

5.0

Infrastructure

 

TBC

1.0

5.0

Hedge Funds

 

Goldman Sachs

2.0

-

Total Other Return-Seeking Assets

 

 

18.0

20.0

 

UK Corporate Bonds

Active

LGPS Central Ltd

6.5

5.0

 

UK Index Linked

Passive

Legal & General

6.5

5.0

 

UK Gilts

 

 

-

5.0

Cash

 

 

1.0

1.0

 

Total Defensive Assets

 

 

14.0

16.0

 

 

 

 

100.0

100.0

 

In response to questions from Mr Jenkinson, the Director of Corporate Services indicated that:

 

·         Infrastructure was considered to be a return-seeking asset rather than a defensive asset, although it was recognised that some Infrastructure investments could be considered defensive assets if the primary reason for investing in such was to seek stable cashflows

·         The timetable for moving from the current benchmark to the long-term benchmark was three to five years.

·         Pension Funds were still awaiting guidance from Central Government on their expectations in relation to the investment in Infrastructure but it was considered unlikely that they would mandate anything specific.

·         Climate Change was not amongst the economic scenarios modelled by Hymans Robertson as part of their Strategic Asset Allocation work, as such matters were subjective and tended to be considered through the Responsible Investment work of individual investment managers.  The Director explained that more consistent and reliable data was required on this matter and Hymans would be requested to give further consideration to how they might include assumptions about Climate Change in future valuations.

 

RESOLVED – (a) That the recommendation of the Pensions Panel, at its meeting of 3 December 2019, and Hymans Robertson LLP’s proposed ‘direction of travel’ for the Staffordshire Pension Fund, in relation to its Strategic Asset Allocation (SAA) over the next 2-3  years, in moving from the Fund’s Current Benchmark to its Long Term Benchmark, be approved; and  

 

(b) That it be noted that further detailed discussions may need to take place in relation to a number of the proposed changes.

 

Supporting documents: