How are you addressing climate change risk in the portfolio?
We have had a specific review done of climate risks. We haven’t discussed that with our committee. We are very aware of the challenges, but are trying to take a pragmatic approach.
Among your largest equity holdings are BP and Shell, so how can you be addressing climate change with such large allocations to fossil fuel companies?
At the end of the day we still retain that fiduciary responsibility. We have a responsibility to all of our stakeholders, and that includes our local tax payers, to make sure that we get the returns on investment. We will take a view on the likely returns that can be achieved by those investments.We also have a large allocation to passive equities. So no specific decisions are being taken about the weighting within those portfolios in terms of individual stocks. That doesn’t mean to say that we won’t look at that and have a more focused portfolio going forward.
Are you using your influence as a shareholder to steer a company in the right direction?
Yes. West Midlands Pension Fund had a dedicated responsible investment officer. They have now been successful in getting the responsible investment director position at LGPS Central. They are still supportingus. So yes, we certainly engage with companies and we vote our shares.
In the year to March 2017 you beat your benchmark in all your asset classes expectfor private equity. What was the issue there?
What you have to recognise with private equity is that there is a j-curve, so it depends on when we have made those major investments. I am relatively new to the fund, so I am only just picking up this private equity stuff now. We are doing a review of it.
You generated a 25% return on emerging market debt in the year to the end ofMarch 2017. What is your strategy there?
We did identify that as an area to focus on in terms of getting that higher level of income, but recognising that there is a slightly higher level of risk there. We probably have not had as much in it as we have wanted to allocate to it. That has been unfortunate, but we are still considering options there and will be looking at that in the next few months.
What are your plans for the portfolio in the next 12 months?
Clearly with LGPS Central now up and running we need to work closely with our partner funds across the region to make sure that we focus on those areas where there is a common requirement to put new money in. We can also look at those areas where we can see the biggest benefits from a reduction in fees. It will vary a little bit.
We are meeting partner funds on a regular basis. Once a month we discuss what wewant to deliver in terms of the product pipeline from LGPS Central and liaise closely with them to see what they can deliver for us. To a certain extent some of the asset allocation news may be reliant on what is coming out of the pool.
The last thing we need to do is to transition significant sums of money only then to find that having transitioned that cash into the pool discovering that it has increased our costs. Rather than do double transactions we will focus on those areas where we know that the pool can deliver lower costs and higher returns for us.
There are obviously some areas where perhaps the pool is focusing on a later timeline that we might deliver to. So we are looking at a focus on increasing allocation to the income area – so infrastructure and property– where we can.
