Pension Fund Committee 04 December 2020 Item 5

LGPS CENTRAL POOLING UPDATE

Introduction

1. This report continues the series of updates requested by Committee on progress towards delivering investment pooling. It summarises the main activity since the last update presented in September.

Recommendation

2. The Committee is asked to note the position as set out in the report.

LGPS Central Joint Committee

3. The LGPS Central Joint Committee is a public forum for the Councils within the LGPS Central Pool (the Pool) to provide oversight of the delivery of the objectives of the Pool, the delivery of client service, the delivery against the LGPS Central business case and to deal with common investor issues.

4. The Joint Committee provides assistance, guidance and recommendations to the individual Councils in connection with specific pooling functions taking into consideration the conflicting demands and interests of the participants within the Pool. The Joint Committee does not have delegated authority to make binding decisions on behalf of the participating Councils.

5. The Joint Committee is a public meeting and Cheshire West and Chester Council act as clerk to the Joint Committee.

6. The Joint Committee usually meets twice yearly in spring and autumn. The spring 2020 meeting was cancelled due to the impact of Covid-19 at that time. The autumn 2020 meeting was held on 20 November. The meeting was held successfully via MS Teams with a live webcast available for public viewing

7. The roles of chair and vice chair rotate annually between partner funds. Given the cancellation of the spring 2020 meeting, the November meeting elected Councillor Biggins from as Chair and Councillor Hogg as Vice Chair for the coming year.

8. Members of the public can submit written questions to the Joint Committee. For the November meeting seventeen questions were received. Recognising that the spring meeting was cancelled Joint Committee exercised discretion, for one occasion only, to extend the usual fifteen-minute time allocation for responding to public questions. The questions and responses will be published.

9. The Joint Committee received a report on the work of the Practitioner Advisory Forum, the officer working group which supports the Joint Committee and the Shareholder Forum in the delivery of pooling. Key activity included

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Client related activity • Scrutiny of investment performance of pooled investment funds. • Pooled product launches and new product development. • Approval of key performance indicators for 2020-21.

Shareholder related activity • Reviewing the outturn forecasts provided by the Company. • Discussions with the Company regarding future office accommodation as the lease on current accommodation comes to an end in spring 2021.

10. The updated pooling risk register was also reviewed. The risk register reflects the risks to the Investment Pool in its widest definition rather than individual Partner Funds or the Company.

11. The final item on the Joint Committee agenda was a presentation from LGPS Central Ltd providing an update on the company and information on the performance of each of its pooled investment funds.

12. The Joint Committee papers are publicly available on the Fund’s website at

https://www.cheshirepensionfund.org/members/wp- content/uploads/sites/2/2020/11/Joint-Committee-Papers.pdf

Investment performance

13. The Fund is invested in three investment products provided by the company, the Climate Factor Fund, the Global Active Equity Fund and the Private Equity 2019 vintage. Performance of the two pooled funds and the Private Equity partnership is included in the regular reporting presented to Investment Sub-Committee.

14. Extracts from the company presentation to Joint Committee on the performance of the investment products that the Cheshire Fund is invested in are attached in Appendix A for Committee’s information.

15. As previously reported, the Global Active Equity Fund is below target but by a decreasing margin as more recent performance begins to recover the initial bumpy start of this fund. The Climate Factor Fund continues to meet its index tracking benchmark whilst also making positive contributions to climate outcomes by having an improved climate footprint.

Asset transition

16. There was no scheduled further transfer of Fund assets into the pool since the last report to Committee.

17. Following the decision of this Committee to invest in the pooled Emerging Market Debt Fund, officers are working with the company and other investee partner funds to secure a smooth transition of assets in the coming weeks.

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18. It had been planned to present the business case for the Fund’s investment in the new pooled Multi Asset Credit Fund to this meeting. However, the company has not yet finalised the procurement of managers for this fund. Hence that investment case will now be presented to a future meeting, most likely March 2021.

19. Discussions continue about launching pooled funds for infrastructure and direct property, with company targeting these for launch by spring 2021.

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Joint Committee Meeting

Extract from LGPS Central Limited Update

Originally Presented 20th November 2020

LGPS Central Limited is authorised and regulated by the PageFinancial 55 of 112 Conduct Authority. Registered in . Registered No: 10425159. Registered Office: Mander House, Mander Centre, , WV1 3NB 1 Classified as Confidential LGPS Central All World Passive Equity Climate MF Fund

15

10

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0

Performance (%) Performance Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

-5

-10

LGPS CENTRAL FUND BENCHMARK -15 Source: LGPS Central Limited Page 56 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 2 Classified as Confidential LGPS Central All World Passive Equity Climate MF Fund

FUND INCEPTION TOTAL POOLED PERFORMANCE BENCHMARK TRACKING RELATIVE WITHIN (ACS-PASSIVE) DATE ASSETS UNDER SINCE SINCE ERROR Vs. TARGET? MANAGEMENT INCEPTION INCEPTION BENCHMARK (%) (%) (%) (%) LGPS Central All World Passive Equity Climate Oct-2019 £2,274m +9.60 +9.46 0.10 +0.14 Yes Multi Factor Fund

Highlights & Outlook INVESTORS (2) AMOUNT (£m) 1,713 • Fund is meeting its tracking error target Cheshire 561 Key • Small outperformance versus index since launch in October Performance Source: LGPS Central Limited 2019 Indicator • 44% reduction in carbon emissions and 79% reduction in fossil fuel reserves versus FTSE All World index • Fund also has exposure to five style factors including “quality”

Page 57 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 3 Classified as Confidential FTSE AW Climate Balanced Comprehensive Factor

Climate Characteristics – 12 months to 30 September 2020 versus FTSE All World

Fossil Fuel Reserves 79% lower Green Revenues 41% higher Reserves Green 3328 3500 4 3.36 Revenues 3000 3.5 2500 3 2.38 2.5 2000 2 1500 1.5 1000 698 1 500 0.5 0 0 FTSE All World FTSE AW Climate FTSE All World FTSE AW Climate Balanced Balanced Comprehensive Metric Tons Metric per Equity m$ Comprehensive Proportion Proportion total of revenue %

Carbon Emissions Intensity Weighted Average Carbon Emissions 44% lower Intensity 300 29% lower WA 255 Carbon Emissions 200 173 250 Carbon Emissions 200 150 122 142 150 100 100 50 50 0 FTSE All World FTSE AW Climate 0 Metric Metric Tons/$m Revenue Balanced Comprehensive Metric Tons/$m Revenue FTSE All World FTSE AW Climate Balanced Comprehensive * Source: FTSE

Page 58 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 4 Classified as Confidential LGPS Central Global Equity Active MM Fund

20

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5 Performance (%) Performance

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-5

LGPS CENTRAL FUND TARGET

-10

Source: LGPS Central Limited Page 59 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 5 Classified as Confidential LGPS Central Global Equity Active MM Fund

FUND INCEPTION TOTAL POOLED PERFORMANCE BENCHMARK TARGET RELATIVE RELATIVE (ACS-ACTIVE) DATE ASSETS UNDER SINCE SINCE SINCE Vs. Vs. MANAGEMENT INCEPTION INCEPTION INCEPTION BENCHMARK TARGET (%) (%) (%) (%) (%) LGPS Central Global Equity Active Multi Mar-2019 £2,443m +10.17 +11.72 +13.22 -1.55 -3.05 Manager Fund

Highlights & Outlook INVESTORS (6) AMOUNT (£m)

• “Growth” companies significantly outperforming “value”, which has West Midlands 902 negatively impacted fund performance 576 Key Performance • Changed weightings away from “value” manager to “growth” managers Leicestershire 387 Indicator • Schroders and Union outperformed their performance objective for the 12 month period to end September 2020 Cheshire 285 • The Fund’s carbon footprint is 33% below that of the index, and over 4oo Shropshire 271

engagements undertaken by our stewardship partners in the past 12 months Nottinghamshire 22 • Since September, performance has improved. Confidence in a market recovery has risen following the US election and the Covid-19 vaccine Source: LGPS Central Limited announcement Page 60 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 6 Classified as Confidential

LGPS Central PE Primary Partnership 2018 LP

Investments

FUND COMMITMENT GEOGRAPHY/ STRATEGY COMMITMENT STATUS NUMBER OF FUND CAPITAL DATE REGION AMOUNT* UNDERLYING CALLED (GBP EQUIVALENT) COMPANIES (GBP EQUIVALENT)

Baring Private Equity Asia Fund VII February 2019 Asia Mid-Large Buyouts £30.5m Investing 9 ~32%

KKR Europe V April 2019 Europe Mid-Large Buyouts £31.7m Investing 6 ~20%

Blackstone Capital Partners VIII May 2019 Global Mega Buyouts £31.5m Investing Nil Nil

Growth Mega Permira VIII June 2019 Global £30.6m Investing 4 ~17% Buyouts

Madison Dearborn VIII October 2019 USA Growth Buyouts £26.0m Investing 1 Nil

* Includes reserve for management fee where such fees are outside of the commitment amount Source: LGPS Central Limited

*All figures as at 30th June 2020 Fund Size: £150m Committed & Reserved: £150m (100%) Called to 30th June 2020: 14.2% Called to date: 26.6%

Page 61 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 7 Classified as Confidential

LGPS Central PE Co-Investment Partnership 2018 LP

Investments FUND COMMITMENT GEOGRAPHY/ SECTOR INDUSTRY COMMITMENT CAPITAL DATE REGION AMOUNT CALLED (GBP EQUIVALENT) (GBP EQUIVALENT) Waste / Business Waste Removal GFL Environmental April 2019 North America £20.7m £20.5m Services & Disposal Software for Road Transporeon April 2019 Europe Software £15.0m £15.0m Freight Operators Veterinary Care IVC Group June 2019 Europe Medical Services £20.7m £20.7m

September Savings bank and Acuon Capital Asia Financial Services £20.5m £20.2m 2019 alternative lender Ophthalmology & EyeCare Partners January 2020 USA Medical Services £24.2m £18.6m Optometry Care Source: LGPS Central Limited *All figures as at 30th June 2020 Fund Size: £107m Invested, Committed & Reserved: £107m (100%) Called to 30th June 2020: 88.9% Called to date: 90.8%

Page 62 of 112 LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB 8 Classified as Confidential DISCLAIMER

This document has been produced by LGPS Central Limited and is intended solely for information purposes. Any opinions, forecasts or estimates herein constitute a judgement, as at the date of this report, that is subject to change without notice. It does not constitute an offer or an invitation by or on behalf of LGPS Central Limited to any person to buy or sell any security. Any reference to past performance is not a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable, but LGPS Central Limited does not make any representation as to their accuracy or completeness and does not accept any liability from loss arising from the use thereof. The opinions and conclusions expressed in this document are solely those of the author.

This document may not be produced, either in whole or part, without the written permission of LGPS Central Limited.

All information is prepared as of 06.11.2020.

This document is intended for PROFESSIONAL CLIENTS only.

LGPS Central Limited is authorised and regulated by the Financial Conduct Authority. Registered in England Registered No: 10425159. Registered Office: Mander House, Mander Centre, Wolverhampton, WV1 3NB

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