Investment

The importance of investment

A lot of pension plans are set up as 'defined contribution schemes' where the value of individual pension policies are directly exposed to the highs and lows of the investment markets (such as a personal pension plan). The Local Government Pension Scheme (LGPS) is different. The scheme is set up on a defined benefit basis whereby member benefits are guaranteed with the investment market risk falling on the Fund as opposed to the individual member.

As the LGPS is set up by Statute, payment of benefits to scheme members is guaranteed by law. In order to provide defined benefits the East Sussex Pension Fund has to ensure that it manages investments appropriately so that member benefits can be paid now and for many years to come.

Funding comes from three primary sources

1. Employer contributions

2. Employee contributions

3. Return on investment

So generating positive investment returns is a vitally important element of the Fund. If we didn’t invest, contribution levels for both members and employers would be much higher than they are now.

How do we invest?

Generating sustainable long term investment returns is the Fund’s primary objective. It does so by investing across a range of asset classes such as equities, bonds, cash and infrastructure using both active and passive management styles. Asset allocation is expected to be the Fund’s main driver of returns and risk over the long term. The ESPF Investment Strategy Statement describes the high-level principles governing the investment decision-making and management of the Fund. The statement explains how much we invest in each type of investment, together with the targets which we expect those investments to achieve.

Find out more here:

Investment Strategy Statement 2021

ACCESS Pool

The Government introduced statutory guidance which required Local Government Pension Scheme Funds to work together to “pool investments to significantly reduce costs, while maintaining investment performance”. East Sussex County Council are part of the ACCESS (a Collaboration of Central, Eastern and Southern Shires) LGPS Pool comprised of 11 local authorities, supported by a strong governance framework. ACCESS has a number of investment opportunities available for its member Fund’s. Where a suitable investment opportunity exists, the Fund is expected to invest via the ACCESS pool. Approximately 50% of the Fund is invested through the ACCESS pool (as at 31 December 2022). Find out more about ACCESS progress in the document below.

Access Progress Update 2022

ACCESS Responsible Investment Guidelines compliment the existing Investment Strategy Statement and Statement of Responsible Investment Principles of the Fund. A summary of their guidelines can be viewed below.

Access Responsible Investment Guidelines - in summary.

Responsible investment

At East Sussex Pension Fund, we believe that Responsible Investment (RI) supports the purpose of the Scheme – the provision of retirement income for individuals. RI is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and to generate sustainable, long-term returns. We are very proud of the work we have done in this area and were highly commended in the Local Authorities Pension Fund awards under the category 'Best Climate Change Strategy'.

Find out more here:

Statement of Responsible Investment Principles

ESPF Responsible Investment and Fossil Fuel position - March 2022

Stewardship Code

East Sussex Pension Fund are delighted that we will be listed as a signatory to the UK Stewardship Code 2020 by the Financial Reporting Council.

Stewardship is the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society. You can view our Stewardship report below.

Stewardship report - East Sussex Pension Fund

ESG statement - fund manager engagement Q4/2022

ESG statement - fund manager engagement Q3/2022

ESG statement - fund manager engagement Q2/2022

ESG statement - fund manager engagement Q1/2022

Asset allocation and performance

The Fund invests across a range of asset classes such as equities, bonds (private and public credit), absolute return, property, private equity and infrastructure using both active and passive management styles. Asset allocation is expected to be the Fund’s main driver of returns and risk over the long term. Our Investment Strategy Statement describes the principles governing the investment decision-making and management of the Fund.

The asset allocation for the Fund at 31 December 2022 is shown below.

The value of the investments we manage can grow, but can also go down in value, as with any investment so we have defined processes that mitigate the risks involved. A fall in investment returns will not affect payment of benefits which are guaranteed by law. To enable the Fund to monitor its performance it has set performance benchmarks for its investment managers which allows it to measure them and the Fund against the wider market.

The performance of the Fund at 31 December 2022 is shown below.

Notes: Totals may not sum precisely due to rounding. All returns are net of fees. Unless stated otherwise, all performance figures and objectives provided by Northern Trust as at 31 December 2022. Fund Total value includes cash held with Northern Trust. 1 - Valuation and performance information as at 30 September 2022. 2 - Valuations shown are either 3 m or 6 m lagged and adjusted for distributions/drawdowns and currency movements.

Source: Investment Managers, Northern Trust, Isio calculations.