Lambeth's Pension Fund experienced underperformance against its benchmark during the first quarter of 2025, primarily due to volatile market conditions and the composition of certain funds, according to a recent Pensions Board meeting. The fund's overweight position in multi-asset credit (MAC) is described in the Investment Performance Report - Q1 2025 as a legacy position where funds were warehoused to be used to finance private debt capital calls as and when they arise.
Robert Browning, Acting Assistant Director for Treasury and Pensions, reported that the fund underperformed against the benchmark by 1.3%. This was attributed to underperformance in global equity, emerging market equity, and UK Private Rented Sector (PRS) funds. Performance against all reporting time frames up to five years also fell short of respective benchmarks.
Key factors contributing to the underperformance included:
- Global Equity Funds: The LCIV Global Alpha Growth Paris Aligned Fund and the LCIV Sustainable Equity Exclusion Fund both experienced negative returns due to their exposure to growth stocks and companies affected by economic uncertainties and geopolitical pressures. The Investment Performance Report - Q1 2025 states that the LCIV undertakes regular fund reviews to assess manager skill, suitability and performance. Further updates are provided in the Part II Manager Performance Report.
- Emerging Market Equity: Underperformance in this sector also contributed to the overall negative results. The Investment Performance Report - Q1 2025 states that the LCIV undertakes regular fund reviews to assess manager skill, suitability and performance. Further updates are provided in the Part II Manager Performance Report.
- UK Private Rented Sector (PRS): The Invesco UK Private Rented Sector fund also detracted from overall performance. The Investment Performance Report - Q1 2025 states that the LCIV undertakes regular fund reviews to assess manager skill, suitability and performance. Further updates are provided in the Part II Manager Performance Report. Property benchmark returns are taken as an absolute return target of 8% p.a. for Invesco Property and an absolute return target of 6% p.a. for the London CIV Housing Fund for performance measurement purposes. UK Private Rented Sector Property benchmark returns are taken as an absolute return target of 7% p.a. for performance measurement purposes.
Despite the recent underperformance, the actuary's estimated funding level as of 31 March 2025 stood at 121%. The fund was noted to be overweight in multi-asset credit and underweight in private equity. UK exposure constituted just over £400 million, or just shy of a quarter of the fund. Multi-Asset Credit and Private Debt benchmark returns are taken as SONIA +4% p.a. for performance measurement purposes.
During the meeting, a board member inquired about the impact of negative performance on fund managers. Mr Browning indicated that the subsequent agenda paper would address this issue. Another board member questioned whether the £57.7 million decrease in value was typical across London pension boards, to which Mr Browning responded that he would seek an answer.
The summary of the Investment Performance Report - Q1 2025 recommends to note the report, together with the information in the accompanying performance report at Appendix One. The implementation of this recommendation is not detailed in the provided text. The recommendations were agreed upon, and the board moved into a closed session.