Annual Report 2019/2020 INTENTIONALLY LEFT BLANK Contents
Total Page:16
File Type:pdf, Size:1020Kb
AVON PENSION FUND Avon Pension Fund Annual Report 2019/2020 INTENTIONALLY LEFT BLANK Contents Foreword, Page 2 Review of the Year 2019/20, Page 3 Governance and Management Structure, Page 6 Fund Governance, Page 7 Risk Management, Page 11 Pensions Administration & Communications, Page 15 Pooling of Assets & Cost Sharing, Page 21 Investment Report, Page 25 Funding Strategy, Page 34 Statement of the Consulting Actuary, Page 36 Employer Contribution Rates, Page 38 Statement of Accounts 2019/20, Page 49 Statement of Responsibilities for Avon Pension Fund Account, Page 89 Auditor’s Report, Page 90 Summary of Financial Statistics, Page 93 Pension Increase, Page 96 Contacts, Page 97 Glossary of Terms, Page 98 Appendices, Page 100 AVON PENSION FUND ANNUAL REPORT 2019/20 1 Foreword This year was always set to to meet its liabilities and considered further developing its core agenda be very challenging with the further opportunities to better align around the key themes of legal triennial valuation and strategic the portfolio with the transition to a compliance, risk management and investment review to undertake, low carbon economy. As a result, benchmarking. The Board’s annual but nevertheless the year was we have now agreed an overarching report is included with this report. approached with optimism as the objective to implement a <20C Fund was in a strong position. aligned portfolio by committing During what has been a most However the year will undoubtedly to net zero emissions by 2050 or remarkable year, I would like to be remembered as the year of the earlier. This alignment to the Paris thank all my colleagues on the pandemic and whilst this forward Agreement is seen as just the start Committee for their contributions only encapsulates the period to of the journey aimed at reducing the and ongoing support and on March 2020, the last few weeks Fund’s carbon footprint and we will behalf of the Committee thank all of March and indeed the ensuing be working with Brunel and other staff at the Avon Pension Fund months have seen a monumental partners to achieve this over the who continue to provide excellent effort by the Funds’ staff to maintain coming years. services in what are still very services under the most difficult of extraordinary circumstances. circumstances. In particular work By the end of the year we had to deliver digital services has been transitioned 50% of the Fund’s accelerated by default with all staff assets to Brunel Pension Councillor Bruce Shearn homeworking as of the end of Partnership, the company we March, a situation which will likely established with nine other LGPS Chair, Avon Pension Fund Committee persist for some time yet. funds to manage our pooled assets. Given the complexity of the work The valuation itself showed a involved to create and transition significant improvement in the each investment portfolio and the funding position since the 2016 number of parties involved, this is a valuation, driven largely by the fantastic achievement. Momentum strong asset returns achieved by continues in the current year, the investment portfolio over the despite the pandemic, with at least three years to 31 March 2019. another three investment mandates However, the reduction in the transitioning to Brunel, meaning we deficit contributions was offset by are well on our way to completing upward pressure on future service this work by 2022. We are already contributions, from the additional able to see some of the benefits costs arising from the McCloud of the Partnership with its strong judgement and expectations of approach to Responsible Investing lower investment returns, given the whilst fee savings are ahead of outlook for market prices and yields those assumed in the original at 31 March 2019. Indeed, McCloud Business Case. will give rise to a significant extra workload over the next 18 months The Fund also strengthened its or so as the remedies become own Governance arrangements known and is set to further challenge during the year with the addition of resources in the current climate another Independent member to the Committee bringing considerable Unfortunately, the pandemic investment experience, together ended a multi-year period of with a new academy representative positive investment performance, strengthening coverage of with the portfolio falling over employers’ interests in decision the year by 6.4% to £4.5 billion. making. The Committee and However, our investment strategy Investment Panel have continued is well diversified, with a long- to operate effectively, despite the term investment horizon, so it is Pandemic, as has the Local Pension designed to be resilient to market Board which itself has welcomed volatility. The committee completed new members. The Board continues its strategic investment review to with its function of monitoring ensure the Fund was still on track legislative compliance and is 2 AVON PENSION FUND ANNUAL REPORT 2019/20 Review of the year 2019/20 COVID-19 PANDEMIC assets within the portfolio and the POOLING OF ASSETS equity protection strategy which The year was dominated by the added 0.6% to the overall return. Since 2018 the Avon Pension Fund impact of the Coronavirus pandemic Allocations to diversifying assets (the Fund) has been participating in in the last quarter as the virus took such as Diversified Growth Funds the Brunel Pension Partnership Ltd hold globally, nations responded with and Hedge Funds performed (Brunel), a collaboration of 10 LGPS restrictions to contain the spread their strategic role by providing funds (the “clients”). The objective of and investment markets took fright some downside protection as pooling is to generate cost savings as an extremely sharp economic equity markets fell. Bond markets, from investment fees and provide slowdown materialised. As the year especially credit markets were badly more efficient management of the ended the Fund was establishing affected as investors feared a rise in investment assets to enhance new remote working arrangements defaults. returns. to ensure it could still deliver its service to members and employers Over the year sterling depreciated Under these new arrangements, alike, monitoring cashflow and against the US dollar, Euro and the Avon Pension Fund retains reviewing proposed changes to the Yen. As a result, the currency responsibility for setting its investment strategy to ensure it was hedge contributed negatively to the investment strategy (or asset still appropriate given the uncertain overall return. Excluding the foreign allocation), as well as the funding outlook. currency hedge the returns were and administration strategies. -5.3% over one year and 1.3% per Brunel is responsible for ensuring INVESTMENTS annum over three years. each fund can implement its bespoke investment strategy via a During the year the value of the The Investment Strategy was suite of portfolios that it offers its Fund’s assets decreased by £352 reviewed in 2019/20, at the time clients. million to £4,467 million at 31 March against a vastly improved funding 2020. The investment return of position. Allocations were increased Since Brunel was authorised to -6.4% was the first negative return to assets such as Private Debt operate by the FCA in March 2018, since 2016. The return over the last and Secured Income that generate significant progress has been made three years was 1.0% per annum income to better match the cash flow in transitioning the Fund’s assets to which is below what is required in profile of the liabilities. The allocation Brunel portfolios. In the last year a the funding plan. to sustainable equities was further £1,511m transitioned bringing increased from 5% to 10% of total the assets managed by Brunel on Positive investment returns for the assets which together with the 10% behalf of the Fund to £2,252 million first nine months of the year were invested in Low Carbon Equities will or 50.4% of the Fund’s assets. eliminated by year end due to the help mitigate the financial impact Important progress was also made impact of COVID-19 on investment of climate change on the Fund’s on responsible investing with Brunel markets globally. No asset class assets. Lastly, objectives were set to publishing its Climate Change Policy or geographic area was immune; address the risk of climate change in early 2020. This policy is aligned economic growth and drivers are on the portfolio, providing clear with the Fund’s own objectives and truly global and as a result this milestones for review over the next will be crucial in enabling the Fund pandemic has wreaked havoc three years. to achieve those objectives over the causing an economic slump worse coming years. than that experienced in 2008. How During the year another three quickly the global economy recovers equity mandates transitioned to Included in this Annual Report is and how sustainable any recovery Brunel. Brunel has also appointed a summary of the costs of pooling will be is difficult to ascertain; a manager to provide Risk and the savings achieved to date. changes in consumer and industry Management Solutions to its clients. This is updated annually in line with behaviour following this pandemic At least another three mandates regulatory guidance and includes the will determine how attractive markets are planned to transition by the savings against the 2016 Business will be in the long-term. Some asset end of the current financial year. Case. In 2019/20 fee savings classes such as property could In addition, the new allocations were achieved on the assets that face unique challenges if working to Secured Income, Private Debt transferred. However, the costs patterns structurally change as a and Infrastructure assets are being to date associated with setting up result of the crisis. invested via Brunel’s portfolios. Brunel, ongoing operations and transitioning the assets means the The Fund weathered the crisis Fund has incurred net costs of £5.2 well, due to the diverse range of million, which is lower than the costs AVON PENSION FUND ANNUAL REPORT 2019/20 3 anticipated in the business case to estimated to be back at 84% due partnership to meet this challenge.