The Avon Pension Fund Committee Investment Panel met on Wednesday 3 September 2025, and among other things, noted the panel forward agenda and reviewed investment performance for periods ending 30 June 2025. The panel also approved the Somer Valley Enterprise Zone Additional Investment Fund.

Somer Valley Enterprise Zone Additional Investment Fund

The Director of Capital & Housing Delivery approved the acceptance of an additional £9.3 million in funding from the WECA Investment Fund for the Somer Valley Enterprise Zone (SVEZ). This funding will facilitate the delivery of the scheme, covering land acquisition, highways technical design, and contractor procurement. The decision was made under decision E3606, in consultation with the S151 Officer¹. The report stated that no alternative options were considered, as the funding is essential for the SVEZ development.

Review of Investment Performance

The panel reviewed the investment performance for periods ending 30 June 2025, as detailed in the Quarterly Investment Performance Review, the Mercer Performance Monitoring Report (Appendix 1), and the Brunel Quarterly Performance Report (Appendix 2).

Key points from the review:

• The Fund's assets stood at £6.031 billion on 30 June 2025, delivering a net return of 3.7% over the quarter, which was 0.3% ahead of the strategic benchmark.
• Positive returns were generated from the Brunel listed equity portfolios and the LDI portfolio, as gilt yields fell. Multi Asset Credit (MAC) and Diversifying Returns also contributed positively.
• Returns for the private markets portfolios were also positive, although performance versus benchmarks were mixed.
• The estimated funding level stood at 106% at 30 June 2025, representing a surplus of approximately £367 million.
• The discount rate was updated to 5.55% per annum, equivalent to a discount rate of CPI+3.15% per annum at 30 June 2025.
• Over the year to the end of June, the Fund returned 3.4% in absolute terms and 2.5% in relative terms.
• The Brunel listed portfolios delivered positive returns but fell short of their respective benchmarks, contributing to underperformance over one year.
• Returns from private markets were positive and generally performed in line with or ahead of benchmark.
• The equity protection strategy detracted over one year.

Brunel reported on the performance of the assets they manage on behalf of the Fund. The second quarter of 2025 was marked by heightened volatility due to renewed trade tensions and escalating geopolitical risks. The announcement of aggressive new tariffs by the U.S. administration in early April triggered a sharp sell-off, but sentiment stabilised following a temporary suspension of most measures to allow for trade negotiations.

Technology stocks were the standout performers, rebounding sharply as the pause in tariff implementation created a strong risk-on environment which was strengthened by better-than-expected earnings announcements and renewed enthusiasm for AI technologies among investors. In contrast, the healthcare and energy sectors lagged, weighed down by weak earnings and geopolitical disruptions.

At an individual portfolio level:

• The Brunel Global High Alpha portfolio returned 4.4%, lagging its benchmark return by 0.8% due to weak stock selection.
• The Global Sustainable Equity portfolio also delivered a positive return of 3.4% but this was 1.8% behind the MSCI ACWI benchmark return.
• The FTSE Developed Paris Aligned Index (PAB) returned 4.9% over the quarter, closely replicating the performance of the benchmark index over the period.
• The Diversifying Returns Fund (DRF) returned 1.1% over the period, whilst its benchmark (SONIA² +3%) returned 1.8%.
• The Multi Asset Credit Fund (MAC) returned 2.6%, ahead of its primary benchmark (SONIA +4%) return of 2.0%.

Regarding investment strategy and portfolio rebalancing, returns versus the strategic assumptions used during the 2023 investment review indicated that equity and liquid growth asset classes are generally in line with or exceeding expected returns. Property is below its modelled return, and the other private market mandates are largely still in the build-up phase or do not have a sufficient track record to properly compare against strategic return assumptions.

During the period, £1.6 million was called into the Schroders Wessex Gardens portfolio. The first call into the Foresight SME Funding Strategy was also made as the Fund made its first investment into a regionally based childcare business. All calls for Brunel private markets portfolios during the period were funded from cash that has accumulated from distributions.

A summary of portfolio carbon metrics measured by Brunel over the quarter is included on page 10 of Appendix 2. The Fund undertakes in-depth carbon analysis on an annual basis and publishes the results in its Annual Responsible Investment Report, which is cleared by Committee in September.

As a responsible investor, the council actively endorses collaborative engagement and seeks to use its power as a shareholder to encourage corporate change. Voting and engagement are delegated to the Brunel Pension Partnership for the actively managed equity portfolios and to Legal and General Investment Management (LGIM) for the passive portfolios.

Risk Management Framework Review

The Funding and Risk Management Group (FRMG) is responsible for agreeing the operational aspects relating to the Fund's Risk Management Framework (RMF), thereby ensuring that strategic objectives continue to be met.

Exempt Appendix 1 of the Risk Management Framework showed that all risk management strategies are rated green and continue to perform in line with expectation. There was a total collateral interest rate buffer of approximately 10% at 30 June, which is 7% above the point at which the manager would engage with the Fund to increase collateral.

The underlying equity benchmark rose 4.7% over the quarter, with the equity protection strategy (EPS) detracting 1.9% from the net equity performance. Since inception, the dynamic EPS has detracted approximately 2.5% from equity returns and reduced volatility by approximately 24%.

At quarter end, the interest rate hedge ratio stood at 28%, and the inflation hedge ratio was around 15%. The yield trigger framework for implementing hedging at attractive levels has been discontinued ahead of adopting a long-term strategic hedge ratio target. This is in the process of being implemented, and officers will report back at the November Panel meeting.

Forward Agenda

The Forward Agenda report set out the forward agenda for the Panel for 2025/26. It is provisional, as the Panel will respond to issues as they arise and as work is delegated from the Committee. For the rest of the year, the change in pooling arrangements will dominate the work focus of the investments team. Therefore, the Panel's focus will be on monitoring performance and considering pooling issues related to the investment strategy if required.

The provisional agenda includes:

26 November 2025

• Strategic: Future of Pooling – update if required
• Routine: Quarterly Investment Performance and Risk Management Framework Monitoring

February 2026 (TBC)

• Strategic: Future of Pooling – update if required
• Routine: Quarterly Investment Performance and Risk Management Framework Monitoring