The Joint Pensions Committee of Wandsworth Council met on Tuesday, 7th January 2025, to discuss the government's Fit for the Future consultation on the Local Government Pension Scheme (LGPS) and to review the fund's investment performance. The committee noted the government's proposals for reforming LGPS asset pools, boosting local investment, and strengthening governance, and provided comments on the proposed response to the consultation. They also reviewed the quarterly investment performance report, noting that the London CIV Global Focus Fund was above the 15% threshold and that cash levels exceeded the higher benchmark threshold.

Response to the Fit for the Future Consultation

The committee discussed the government's consultation on the future of the LGPS, which aims to address fragmentation and inefficiency within the scheme through further consolidation. The proposals, influenced by the Canadian pension model, seek to strengthen investment management in three key areas: reforming asset pools, boosting local investment, and enhancing governance.

A significant concern raised was the proposed shift of investment implementation responsibilities from local authorities to asset pools, such as London CIV. While local authorities would retain the ability to set high-level investment objectives, the detailed asset allocation, including decisions on active versus passive management, geographical focus, and thematic biases, would be delegated to the pools. This change is seen as a potential loss of control over risk management, as the decision on whether to invest in active or passive funds is considered crucial for managing risk and costs.

The committee also discussed the proposal to increase local investment, with a preference expressed for defining local as the UK to ensure a diversified portfolio and sufficient investment opportunities. Concerns were raised about the adequacy of the proposed shareholder representation on pool boards, with a call for stronger contract management arrangements to ensure accountability.

The Director of Financial Services, Fenella Merry, explained that the government's stance indicated a limited appetite for substantial changes to the proposals. Therefore, the London Pension Officers Group has focused its response on key areas of shared concern across London boroughs to maximise the impact of their feedback. These key areas include retaining the right to determine the split between active and passive equity, addressing concerns about the capacity of pools to oversee legacy private market mandates, defining local investment as UK-wide, and strengthening governance and contract management arrangements.

The committee resolved to note the government's proposals and provide comments on the proposed response to the consultation.

Quarterly Investment Performance Report

The committee received a report summarising the performance of the Pension Fund's investments up to 30 September 2024. The overall fund performance was positive, outperforming its benchmark for the quarter and the year. However, concerns were raised regarding the performance of some active equity managers, with all three active equity managers having below-benchmark returns over the last three years. The LCIV Global Equity Focus fund, managed by Longview, was noted as being above the 15% threshold of the fund's total value, and cash levels were also above the higher benchmark threshold.

The report also highlighted that the transfer of Allianz and Janus Henderson's bond holdings to LCIV's Buy and Maintain all maturity bond fund had been completed in October. Updates were provided on commercial property managers, with Schroders noted as having underperformed for the last two years. The committee also noted the ongoing merger discussions for the Nuveen UK Property Fund (UKPF), with delegated authority granted to the Director of Financial Services to vote on the merger if required before the next meeting.

General Matters

Under General Matters, the committee received updates on several topics:

• Transition of assets to the Pool: The report detailed the progress and challenges in transitioning assets to the London CIV pool, with a particular focus on illiquid assets and the deadline of March 2026. Concerns were raised about the availability of suitable investments within the pool and the current absence of a Chief Investment Officer at London CIV, which could pose a risk to effective oversight.
• Nuveen UK Property Fund (UKPF): The committee was updated on the ongoing merger discussions for the UKPF. Due to ongoing due diligence and valuation discussions, investors were balloted to extend the redemption suspension to 31 March 2025. The Director of Financial Services had previously used delegated authority to vote in favour of this extension to avoid a forced sale of properties.
• Climate Reporting Update: The committee was informed about the ongoing work to compare climate reporting data from Mercer and London CIV, with a view to establishing a consistent approach for reporting on progress towards net-zero targets.
• Update on Responsible Investing: Following a petition regarding disinvestment from companies linked to the Israeli military action in Gaza, the committee noted that any future actions on responsible investing would need to be implemented through London CIV, requiring consensus across all London boroughs due to the government's Fit for the Future proposals.

Communications Policy Review

The committee reviewed and approved updates to the Communications Policy for the Wandsworth Pension Fund. The revisions primarily involved updating organisational name changes. The policy outlines the Fund's commitment to providing clear, timely, and accessible communication to all stakeholders, including scheme members, employers, and elected officials.

The meeting concluded with the exclusion of the press and public to discuss commercially sensitive matters related to fund manager presentations.