[To provide a quarterly update on a range of investment issues, primarily the economic and investment background, the Fund’s responsible investment activities, an update on LGPS Central investment pooling and the quarterly performance of both the West Midlands Pension Fund and the West Midlands Integrated Transport Authority]

Jill Davys, Assistant Director – Investments and Finance presented the quarterly investment report that covered the range of investment issues, primarily the economic and investment background, the Fund’s responsible investment activities, an update on LGPS Central investment pooling and the quarterly performance of both the West Midlands Pension Fund and the West Midlands Integrated Transport Authority.

Councillor Angela Sanderson commented that from the report it appeared that Brexit was having mixed effects on the Fund.  She asked whether it would be adversely affect in future.  She also noted from the report that the global active equities had not performed well compared to the benchmark. The Assistant Director reported that following the Brexit decision there had been an impact in the markets, the main effect being on currency. The Fund had put in place currency hedging arrangements in response to movements in currency. However, the ability to differentiate between whether changes in the markets were as a result of Brexit or merely normal market changes was unclear. Regarding the internal active portfolio, the Assistant Director explained how the portfolio was currently being managed and that the Fund was in the process of putting together an action plan to take the risk out of the portfolio as part of the preparation for transition to a pooling sub-fund.

Referring to the Fund’s stewardship themes theme for 2018, particularly ‘diversity’, Councillor Angela Sanderson said that the Fund needed to be careful how it pressed for improvements in this area. She did not believe in quotas and felt that the best candidate should be appointed to a post. The Chair noted that the stewardship theme was about moving the obstacles that are in place and creating a level playing field.

Rachel Brothwood, Director of Pensions reported that the Fund’s engagement on diversity was wider than gender.

Councillor Steve Simkins asked about training packages available to Fund employees to support them in their development and to enable them to apply for senior positions. The Chair commented that the stewardship theme focused more on the companies the Fund invests and at investment managers and was challenging them on their approach on these issues.

Responding to Councillor Steve Simkins, the Head of Governance and Corporate Services reported that the Fund had a workforce development strategy, the aim of which was to grow and develop its own employee base and had recently commenced its graduate and trainee programme.

Councillor Harbans Bagri asked for an update on currency hedging. The Director of Pensions reported that the Fund was broadly at a neutral position on currency hedging. The gains made during the third quarter of 2017-2018 had eroded by more recent falls in sterling. The Assistant Director - Investments and Finance added that the Fund was looking to make its currency hedging programme more proactive.

Councillor Jasbir Jaspal informed the Committee that she had received correspondence about the Fund’s investments in fossil fuels. The Head of Governance and Corporate Services reported that the Fund regularly received correspondence which is reviewed and responses provided with reporting back to the Committee. The Chair requested that if members of the Committee received correspondence from persons regarding the Fund’s investments, they should forward it to the Fund’s officers for support with responses. Members could also bring the issue to the Committee for discussion. He noted that the Fund was, seeking to directly influence the companies it invested in through engagement. The Committee had to balance pension scheme members interests and the duty to pay pensions against any concerns, whilst managing material financial risks.

Resolved:

1.    That the global economic and market update paper prepared by the fund’s adviser, Hymans Robertson be noted.

2.    That the Fund’s Responsible Investment Activities including: the Fund’s voting activity for the three months ending 30 June 2018, including Appendix B; the issues discussed by LAPFF are set in the Quarterly Engagement Report which is available on the LAPFF website: http://www.lapfforum.org/publications/qrtly-engagement-reports/ ; progress against the Fund’s 2018 stewardship themes; other activity undertaken to ensure the Fund continues to develop and support its approach to Responsible Investment be noted.

3.    That the update on Investment Pooling be noted.

4.    That Quarterly Performance Reporting for the West Midlands Pension Fund be noted.

5.    That Quarterly Performance Reporting for the West Midlands Integrated Transport Authority be noted.