Interview – Surrey Pension Fund


ers. We work with our 10 partner funds to build products that are suitable for our respective strategies. We have been looking to build regional products. We have not found the sweet spot yet, either for ourselves or our part- ner funds, so we will remain in equities, within a more global allocation, and, as I say, emerging markets.


Which emerging markets are of interest? This leads into the China question. And we cannot ignore it. We are wary of having an allocation to China commensurate to where we see their GDP. But it is in China and the Asia-Pacific region where you would expect to see us in that asset class. China is Schrödinger’s investment propo- sition. It’s a dilemma: but it offers great opportunities, so we cannot ignore it.


Given those dilemmas, how important is ESG to you?


It underpins everything we do. We have an engaged set of committee members. We see it very much as ingrained in all our decisions. We do not have a proportion of the portfo- lio focused on it, say for impact. Instead, we think it should run through everything we do. Good ESG is consistent with our fiduciary duty and good outcomes.


Was that something you introduced to the fund, or has it always been there? I inherited a committee that was commit- ted to that approach. Three years ago, we sought independent research to map our investment portfolio in comparison to the United Nation’s Sustainable


of ESG, around climate


The pressure of the J curve is significant. We need to undertake some tactical analy- sis of that to make sure the cashflow situ- ation is in hand.


As a result of the LGPS pooling, governance has improved beyond recognition.


nised the importance of understanding climate risks and opportunities as an investor.


I would not say we were trailblazers, but I think we were the first to look at our investment universe through the sustain- able development goals lens.


What about COP27? Was there anything to excite you?


I was slightly disappointed. The 1.5-degree goal is a tangible target for investors, so it is a shame it has not been built on. It is going to be down to individual funds, trustees and investment companies to move that process on. We needed to build on the Paris-aligned measures, but that did not come out.


Are you considering adjusting your portfo- lio due to the economic outlook around inflation and recession?


Develop-


ment Goals (SDGs). As the committee was keen that we try to look at the interde- pendencies


change, for example. More than 50% of our portfolio was mapped positively with the SDGs. I sup- pose we have long been advocates of what is now described as a ‘just transition’. As a fund we first provided a TCFD report voluntarily in 2019, because we recog-


I would not say we have to adjust it – but we may have to bring forward some of our tactical thinking, as we will have to pay around another 10% to our pensioners from April. That will be a significant impact on cashflow. Whereas we have been considering turn- ing the distribution or income taps on at a certain period of time, we are undertak- ing a pretty comprehensive review of our asset allocation to make sure it is nimble enough to meet those cashflow demands.


14 | portfolio institutional | December-January 2023 | Issue 119


In which direction are you likely to move? We will turn the income tap on – which could be in real estate – but we need to match that tactically with our equity portfolio.


What worries you most about the economic situation? The cost of living crisis. The demography of the people in the scheme are some of the lowest paid people in the country. The concern for us is making people aware of the pension options available. Pensions are deferred pay, so by opting out of schemes people are effectively turn- ing off deferred pay from their employer. My biggest concern is how the cost of liv- ing crisis manifests itself in short-term decisions


that could have long-term


effects on individuals and society in general.


Were you affected by the crisis that engulfed some pension funds following the mini budget? We were okay. We do not have those liabil- ity driven investment instruments in place. We are not geared at all. We were only exposed via the general market. And, as I mentioned, we have only a small alloca- tion to gilts. In fact, if anything, the value of gilts made the exit for those leaving the scheme more palatable.


What did you make of that short-lived cri- sis overall? There can be a tendency to over engineer financial products. It could be down to the bright young things in the UK leaving Oxbridge and going into the City instead of doing something like science research, as used to be the case.


And with these products, trustees need to take a step back and understand what


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