Enfield's Pension Policy & Investment Committee recently convened to assess the potential ramifications of newly imposed tariffs on the Enfield Pension Fund's investment portfolio. The committee, whose members include Doug Taylor (Chair), Sabri Ozaydin (Vice-Chair), Susan Erbil, Ahmet Oykener, David Skelton and Edward Smith, met on Wednesday, 30 July 2025, to review reports and appendices related to the matter.
The committee was scheduled to note the contents of a report and appendix regarding the impact of tariffs. The discussion took place against a backdrop of global economic uncertainty, with the US imposing trade tariffs on 2 April 2025, which contributed to significant volatility in financial markets.
According to a report prepared for the committee, the tariffs imposed by the US, dubbed 'Liberation Day', were more severe than forecasters expected. Although the US has postponed additional reciprocal tariffs and reached trade deals with the UK and, more importantly, China, uncertainty around US trade policy remains high. The UK trade deal will see cuts to tariffs on car and steel imports, but the 10% tariff on most other goods is still in place. Consensus forecasts for global growth have trended downwards since the start of the year, and the growth outlook is worse than expected before the 'Liberation Day' tariff announcement in early April.
The report noted that equity markets fell sharply in the wake of tariff announcements. However, all the lost ground has since been recovered as the US delayed the implementation of the tariffs and then reached trade deals with the UK and, more importantly, China. As of 20 June, the FTSE All World was up 4.1% year-to-date, having experienced a decline of 16% between February and April.
Inflation forecasts have also been drifting up, with at least some of that potentially owing to anticipated trade disruption. The heightened tensions in the Middle East also pose a threat to global supply chains: the potential closure of trade routes has opened the possibility of inflation surprises.
The report also included a chart summarising how the expected future investment returns have changed between 31 March 2025 and 31 May 2025 for major asset classes. It stated that there is very little difference in the expected future investment returns in the ESS model between March 2025 and May 2025. This is because the model already allows for market volatility, with the current levels of market performance falling within the range of potential outcomes over the short term, and it reflects the long-term nature of the LGPS as an open scheme, meaning a longer-term view can be taken on market volatility.
The ESS (Economic Scenario Service) model uses statistical models to generate a future distribution of year-on-year returns for each asset class and to generate future levels of inflation. It is designed to reflect the correlations between different asset classes and wider economic variables. In the short-term, the models in the ESS are fitted with current financial market expectations. Over the longer-term, the models are built around long-term views of fundamental economic parameters. The ESS is calibrated every month with updated current market expectations.
The report concluded that it would not be appropriate to take any immediate action regarding the assumptions set for the 2025 valuation in light of the current activity in financial markets, and that the proposed assumptions remain fit for purpose. The assumptions set for the 2025 valuation that the committee deemed still 'fit for purpose' are related to the long-term nature of the LGPS as an open scheme, the risk-based model used to set the Fund's financial assumptions, the margin of prudence within its discount rate assumption, and the positive results of the modelling, including the alternative scenarios tested.
