The Pension Fund Panel met on Thursday 21 March 2024 to review the fund's performance, budget, and administration. Key decisions included approving the 2024-25 budgetary estimate and work plan, and noting the performance of the Local Pensions Partnership Administration (LPPA).

Pension Fund Administration Update

The panel received an update on the performance of the Local Pensions Partnership Administration (LPPA), the external contractor responsible for the pension administration contract. The LPPA achieved an overall Service Level Agreement (SLA) performance of 97.6% for the quarter ending 31 December 2023, exceeding the 95% target. The report highlighted that all payment cases completed by the LPPA are checked by Ealing staff to ensure accuracy.

The panel was also asked to approve the 2024/25 pensions administration budget proposed by the LPPA. This proposed increase is attributed to a 4.2% rise in overall membership, inflationary cost increases, additional work required for McCloud and the Pensions Dashboard initiatives, and further investment in cyber security. The report noted that while Ealing Council's overall administration costs are slightly above the average for London boroughs, the Pension Fund revenue budget covers the contract cost.

Outstanding issues include an ongoing pensioners reconciliation project to align payments on the iTrent system with the UPM pensions administration system. Overpayments have been identified and corrected, and a future project will address potential underpayments. The panel was informed that 5 outstanding annual benefit statements from 2023 are still being worked on by the LPPA.

Pension Fund Performance Monitor Update for Quarter ended 31 December 2023

The panel reviewed the investment performance of the fund for the quarter ending 31 December 2023. The total fund value increased to £1,574.5 million, up from £1,488.1 million at the end of the previous quarter, representing a 5.8% increase. The overall fund returned 5.82% against a benchmark of 5.21% for the quarter.

However, the report indicated underperformance compared to benchmarks over longer periods, with 12-month, 3-year, 5-year, and since inception returns showing underperformance of -0.50%, -2.26%, -0.95%, and -0.71% respectively. Several fund managers, including Lothbury Property Trust, Standard Life, Hermes, Churchill, Brightwood, Henley, and Darwin BSF, underperformed their respective benchmarks for the quarter.

The panel noted the update from Lothbury Property Trust regarding the fund's redemption notice for its entire investment. Discussions were ongoing regarding a potential merger with UBS Triton, with a second EGM scheduled to vote on an additional fund extension. The report detailed the complexities and risks associated with the proposed merger, including potential impacts on asset sales and pricing.

The panel was asked to acknowledge and approve the commitment of an undetermined sum to the HSBC Senior UK Direct Lending Fund II, aimed at diversifying the fund's private debt mix. This investment would be made under delegated authority. A presentation was also received from executives representing the HSBC Senior UK Direct Lending Fund II, outlining its investment strategy, target returns, and fund structure.

Pension Fund Budgetary Estimate and Work Plan 2024-25

The panel was asked to approve the outline Work Plan for 2024/25 and the Pension Fund revenue account budgetary estimate for the same period. The work plan prioritises sound governance, sustainable investment with a net zero target of 2045, maximising returns within acceptable risk parameters, timely collection of employer contributions, and close collaboration with the London Collective Investment Vehicle (LCIV).

The proposed budgetary estimate for 2024/25 forecasts total income of £70.775 million and total expenditure of £72.900 million, resulting in a net expenditure of £2.124 million before investment income. After accounting for investment income, the net income is projected to be £34.069 million. The increase in expenditure is largely attributed to inflationary increases in pension payments. The budget also accounts for drawdowns for private debt and impact investments, as well as potential additional resource requirements for sustainable investment initiatives.

The report detailed the assumptions behind the budgetary estimates, including employer and employee contributions reflecting the 2022 valuation rates and an anticipated 4.4% salary increase. Investment income is forecast based on the 2023/24 projection plus an approximate 5% growth. The employer contribution rate for departments remains at 22.0%.

Training and Other External Presentations

The panel received a presentation from executives representing the HSBC Senior UK Direct Lending Fund II. The fund aims to deliver risk-adjusted returns by investing in senior secured loans to UK middle-market businesses. It has a target fund size of £1 billion, an 8-year legal term with extension options, and a performance objective of 9-11% per annum. The fund's investment team consists of 13 professionals, and the strategy focuses on the lower mid-market in the UK, with diversified regional exposure. The panel was asked to acknowledge and approve an in-principle investment in this fund.

Standard Life also provided an update on performance and outlook across the property market.

Other Matters

The minutes of the previous meeting held on 14 December 2023 were approved. The panel also noted the appreciation and welcome of Matt Woodman from Hymans, and thanked Philip Pearson for his contributions.

The next Pension Fund Panel meeting is scheduled for 23 July 2024.