S Smith presented the quarterly Investment Performance report to 31st December 2021.

It was noted that the value of the Fund at 31^st December 2021 was £10.8bn.

Since the conflict in the Ukraine which affected all valuations and stock markets, the value at its lowest point was £10.3m and was currently £10.4bn.

During the quarter there had been several significant asset allocation decisions.

As equity markets continued to be strong, £9.9m was raised from the legacy holdings and these were used to fund the drawdowns into the alternative funds.

The largest transaction in the quarter was the transition of high yield and emerging market bonds to the new Border to Coast Multi Asset Credit fund in October.  Cash proceeds of £47.5m was also added to take SYPAs weighting towards a neutral weighting.

Within property four sale transaction were completed during the quarter.  These were detailed within the report and had been reported earlier in the 2021 Strategic Plan.

As reported last quarter, there was a significant drawdown of £105m into infrastructure funds which had taken the weighting within the permitted ranges for the asset class.  There was only one category outside of its tactical range which was private equity.

It was noted that for the quarter to the end of December 2021, the Fund returned 4.1% against the expected benchmark return of 3.7% and for the year to date the Fund had now returned 10.7% against an expected return of 9.3%.

The report contained details of the performance of Border to Coast funds and a chart showed quarterly returns and also the longer term position of each of the Border to Coast Funds held by SYPA.

Regarding the Net Zero target, SYPA would consider a range of alternative investments approaches to enable the management of risks and opportunities related to climate change.

SYPA already had exposure to a range of low carbon investments through its existing strategy in areas such as infrastructure and private equity, and would look at increasing these further in the forthcoming strategy review.

Members were informed that Border to Coast were currently exploring the possibility of launching a Climate Opportunities which SYPA was supportive of.  All of this portfolio would be climate and carbon aware supporting SYPA’s commitment to decarbonise and would help meet the net zero target.  Full details were contained within the report – SYPA’s commitment would be £245m.

S Smith commented that the outlook was positive at the moment due to the diversity of asset allocation within the Fund.  The Fund at its worst point only fell by 4½%, another positive was that the Fund held assets that benefitted from inflation.

The Federal Bank had raised interest rates and announced six further rises but also stated that they did not think that this would impinge the growth of the US economy.  China had also stated that they would ensure that there was stability in their capital markets.

The Chair thanked S Smith for the update.

M Lyon gave a presentation on the performance of SYPA’s assets and future opportunities within Border to Coast Pensions Partnership.

Areas covered included:

·       Valuation and Commitment

·       UK Listed Equity Fund

·       Overseas Developed Markets Fund

·       Emerging Markets Equity

·       Multi-Asset Credit

·       Sterling Investment Grade Credit

·       Sterling Index Linked Bonds

·       Climate Opportunities

M Lyon explained the positioning of and logic behind Border to Coast’s Russian investments where they were underweight credit and overweight equities, although overall they were slightly underweight.

The current position was that the assets had zero value and couldn’t be traded.  The situation would be continually monitored and a decision on future exposure to Russia would be made in the future when there was more clarity and taking into account Partner Funds’ views.

Regarding the proposed Climate Opportunities fund:

·       Deliver 8% target investment return through income and capital growth.

·       Invest in opportunities focused on reducing carbon emissions and support the transition to a low carbon economy.

·       Managers must clearly demonstrate and report carbon/transition impact.

·       Avoid “greenwashing” through assessment of manager and funds alignment with net zero and a lower carbon economy.

Members discussed the improvement of the levels of disclosure, greenwashing, divestment and engagement and the understanding of the pathway to net zero.

The Chair thanked M Lyon for a very informative presentation.