Brunel’s big 2019 update

Mark Mansley
Chief Investment Officer

Investment progress

It has been another exciting and challenging year for Brunel and our LGPS Clients.

The last year has seen substantial progress in the development of our investment business. We have worked closely with our Clients to deliver new portfolios, and a very useful development has been an assurance framework with Clients so they can be satisfied we have met the specification for each portfolio, and so allocate to the portfolios in an expedited manner.

By the end of 2019 we successfully transitioned circa £15bn of Client assets, which amounts to 50% of the projected total. By Q4 2020, we expect to have launched the majority of our portfolios and the transition of Client assets to Brunel should be nearly complete. We will increasingly focus on management and how we can continue improving the portfolios and the service we provide.

We have received excellent feedback from managers about the quality of our selection processes, and the robustness of our investment and operational due diligence – it’s become known across the industry that we kick the tyres quite hard. This absolutely fits with our long-term and sustainable approach towards investing for our Clients.

Listed Markets

We restructured the listed markets investment team during 2019, recognising growing demands in this area. David Cox was appointed to the newly created position of Head of Listed Markets in the first quarter.

Following the launch of four passive portfolios in 2018, activity has picked up tremendously.

Key achievements

• • • • We launched our Authorised Contractual Scheme (ACS) in December 2018 as a tax efficient and low-cost platform to host our portfolios
• Active UK Equities launched as the first portfolio (sub-fund) on the platform, with an initial value of over £1.5 billion
• Low Volatility Global Equities, the second portfolio on the ACS, launched in March 2019. It is now worth over £600 million, with more expected over coming months
• Emerging Markets, launched in November 2019 with around £1 billion of assets
• Our largest portfolio, High Alpha Equities, launched in December 2019 with over £2.5 billion of assets
• We developed a platform in partnership with BlackRock to enable our Clients to access Liability Driven Investment and other risk management strategies

Processes and analysis

We have focused on refining our processes and analysis. Our manager evaluation process is rigorous, and we use a range of tools to ensure managers have genuine skill and are doing what they say they do. We work in particular with Inalytics, who provide detailed analysis of how good managers are at buying and selling. We also integrate responsible investment into our manager selection, expecting managers to be able to demonstrate how they have considered Environmental, Social Governance (ESG) issues in the portfolio.

One area we have particularly developed is portfolio construction. Detailed analysis equips us to build the best combination of managers in the best proportion, balancing risks and other factors. The aim is to reduce idiosyncratic manager risk and manage other risks while meeting our cost and return targets, thereby achieving the portfolio objectives in a more controlled manner.

We are also developing ongoing portfolio management processes. We procured a Portfolio Management System from FactSet to ensure we manage the live portfolios effectively. Our scrutiny of appointed managers is thorough, and we are pleased with how our managers have responded to the challenges we have set them, particularly in the area of climate change risk.

Private Markets

Our private markets team, under the leadership of Head of Private Markets Richard Fanshawe, has made great strides forward,  investing around £1,261 million of capital allocated by Clients in this first cycle. We appointed Colmore as our specialist private markets middle/back office provider to support the administration of our private market portfolios. The team have also been very busy preparing for the launch of the second cycle of PM portfolios and early indications from Client funds have been very encouraging.

It is already clear that pooling offers tremendous advantages in investing and offers much more than cost savings – although the team has already achieved significant cost savings for Clients. The professionalism and proactivity of the team means that managers want to work with them, which has resulted in strategic partnerships and other enhanced relationships.

Key achievements

• Private equity – Brunel has committed to one secondary fund, two co-investment funds (including one with a focus on impact investing) and one pan-European primary fund. Three further complementary primary funds will be selected to fully commit the remaining cycle 1 capital
• Infrastructure – three investments in renewable energy funds in the UK, Western Europe and the US. A fourth investment in a general infrastructure fund with a strong focus on sustainability. We are finalising a partnership with a leading provider for all the outstanding cycle 1 capital
• Secured income – investments into two long-lease property funds and one sustainable infrastructure income fund
• Property – preparations made to take on Clients’ legacy property fund holdings. The first Client has been successfully onboarded, with others due to follow before the end of March 2020

Responsible Investment

I am immensely pleased with the continued impact we have had on responsible investment in our second year, led by Faith Ward. Working with Clients on priority areas, we published position statements on tax and climate change.

In 2018 we published our Responsible Investment Policy based on three pillars: ’To Integrate’, ’To Collaborate’ and ‘To Be Transparent’. It has been encouraging to see significantly increased interest across UK government and regulators in responsible investment, stewardship, and environment and social issues. Our full list of consultation responses are published on our website page policy advocacy.

Key achievements

• Cost and Tax Transparency – we produced a public summary position statement regarding our tax policy, and supported the Global Reporting Initiative (GRI) draft standard: Tax and Payments to Governments
• Human Capital & Diversity – we continue to work with the Diversity Project, and provided insight into a paper Addressing Barriers to Diversity in Portfolio Management: Performance Continuity and Turnover
• Supply Chain Management – Brunel joined the Investor Mining and Tailings Safety Initiative, which has called for a global independent and transparent classification system of the world’s tailings dams based on the consequences of failure
• Cyber Security (IT Security and misuse) – we contributed to a report written by the National Employment Savings Trust (Nest) and The Railways Pension Scheme (Railpen), entitled Why UK Pension Funds Should Consider Cyber And Data Security In Their Investment Approach
• We were happy to participate in the Government-backed Brydon Review on Audit. Sir Donald Brydon visited us in Bristol to gain the view of long-term investors. We were pleased to see the final report clearly reflected many of these views

Key affiliations are listed at the bottom of our website home page.

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