The Committee discussed a range of issues relating to the Surrey Pension Fund. These included local government reorganization, the MySurrey IT system, the climate change commitments of BP, and a new Conflicts of Interest Policy. The Committee also reviewed performance of the Fund and its investment managers, and noted an actuarial report on the Fund's cash flows. They approved a new communications and training policy, and the annual budget.

Local government reorganisation

Surrey County Council is to be reorganized into a system of unitary councils. As such, it will no longer be the administering authority of the Surrey Pension Fund. The Committee discussed the three options that are available: one of the new unitary councils could become the administering authority, or it could be administered by a new Mayoral Strategic Authority, or a new Single Purpose Pensions Authority. The County Council will have to submit its plans for reorganization to the government by 9 May, 2025.

Councillor George Potter expressed concern that, if the new Strategic Mayoral Authority became the administering authority of the Fund, this could represent a conflict of interest, as the Mayor would have a responsibility to drive growth in the region, which could be at odds with promoting local investments.

I do have concerns about the administration being the new mayor. If there is one, then that's an if because of the mayor's mandate to drive growth and I see that potentially in conflict with promotion of local investments.

Mr Andy Brown, Deputy Chief Executive of Surrey County Council, responded to this by saying that the independence of the Surrey Pension Fund is his priority.

MySurrey

The MySurrey project went live in June, 2023. Since then there have been ongoing problems with the system, particularly with data flowing through into the Pension Fund. The Committee discussed progress that has been made towards resolving these problems. Mr Tom Lewis, Head of Service Delivery for the Surrey Pension Team, said that the data is now flowing through correctly, and that the Council has provided additional resources to process the backlog of cases. This should be resolved by June, 2025.

Divestment from fossil fuel companies

The Committee reviewed the Fund's investments in fossil fuel companies, and their commitments to move away from fossil fuels. In particular, they discussed BP. The Committee was concerned that BP's actions do not align with its stated commitments. In particular, the company has significantly reduced the planned divestment of its oil and gas assets, reduced its emissions reduction targets, and is making further investments in fossil fuel extraction.

Quite clearly, BP have listened to engagement. They have listened to the threat to sell shares to divest from them, but not from our side, from the other side of the argument.

The Committee expressed concern that Border to Coast Pensions Partnership, who manage the Fund's investments in BP, are failing to implement the Fund's responsible investment policy by continuing to engage with the company rather than divesting from it.

What I find beyond belief is the written response on border codes, which is effectively saying we believe we should still keep on engaging and we believe engagement will be successful. What planet can somebody living on to possibly think, to say that, to possibly be able to say with a straight face that engagement is still the best policy?

The Committee agreed to ask the Fund's officers to follow up with Border to Coast and report back to the Committee.

Conflicts of Interest policy

The Committee discussed a new Conflicts of Interest policy. This policy is intended to manage potential conflicts of interest that arise because Surrey County Council is both the administering authority of the Surrey Pension Fund, and the largest employer in the Fund.

Actuarial update

Stephen Scott, the Fund's Actuary from Hymans Robertson, presented an update on the Fund's cash flows. He said that the Fund is projected to become cash flow negative by 2028. This is due to a combination of factors, including high levels of inflation, the effect of the McCloud judgment¹ on pension benefits, and the expectation that contribution rates will be reduced following the 2025 valuation.

The Committee noted the report.

BCPP Multi-Asset Credit Fund

Anthony Fletcher, the Fund's Independent Investment Advisor, expressed concern about the performance of the Border to Coast Pensions Partnership Multi-Asset Credit Fund, which aims to outperform cash returns by 3-4% per annum. He said that the Fund has consistently underperformed against this benchmark, and that this is due to Border to Coast's poor understanding of the Fund's risks and returns.

In the last couple of years I have given BCPP the “benefit of the doubt” on the MAC fund and their explanations for relative performance versus the cash benchmark and the blended market comparator. Despite often unsatisfactory answers to questions about their understanding of the risks they were taking and my concerns on portfolio construction and manager benchmarking.

The Committee agreed to ask Border to Coast to conduct a review of the Fund's strategy, portfolio construction and policies, and to report back to the Committee at its next meeting.