Investment

The Committee seeks to make sure that the Fund has sufficient assets to be able to meet its long term obligations to pay pensions to the Fund's members, for example, over the long term to be at or above a 100% funding level. It also has an objective to maintain employer contribution rates as reasonably stable and affordable as possible.

In order to meet these objectives, a number of secondary objectives have been agreed:

1. To have a clearly articulated strategy for achieving and maintaining a fully funded position over a suitable long-term time horizon. The Committee recognises that funding levels can be volatile from year to year, as they depend on both investment market levels and estimates of liability values, so the long-term strategy needs to be capable of steering a robust course through changing market environments.
2. To have a strategic asset allocation that is both well diversified and expected to provide long-term investment returns in excess of the anticipated rise in the value of the Fund's liabilities.
3. To appoint managers that the Committee believes have the potential to consistently achieve the performance objectives set over the long term and to use a clearly defined benchmark and performance objective against which they can be judged.
4. To ensure investment risk is monitored regularly both in absolute terms (the risk of losing money) and relative to the Fund's liabilities (the risk of funding shortfalls); the Committee will have regard to best practice in managing risk.
5. To have sufficient liquid resources available to meet the Fund's ongoing obligations.

The Fund's key investment beliefs are set out below:

1. Investment Governance: The Fund must have access to the necessary skills, expertise and resources to manage the whole Fund. Investment consultants, independent advisors and Officers are a source of expertise and research to inform and assist Committee decisions. The Fund should continuously monitor and improve its governance structure where relevant, through training in order to implement tactical views more promptly, but acknowledges that achieving optimum market timing is very difficult.
2. Long Term Approach: The Fund looks to take a long-term approach to setting investment strategy, as appropriate, depending on a number of factors, including consideration of the strength and status of underlying employer covenants. The most important aspect of risk is not the volatility of returns, but the risk of absolute loss, and of not meeting the objective of facilitating affordable, stable contribution rates for employers. Illiquidity and volatility are risks which offer potential sources of additional compensation to the long term investor. Moreover, it is important to avoid being a forced seller in short term market setbacks. Participation in economic growth is a major source of long term equity return. Over the long term, equities are expected to outperform other liquid assets, particularly government bonds and cash. Well governed companies that manage their business in a responsible manner will likely produce higher returns over the long term.
3. Appropriate Investments: Allocations to asset classes other than listed equities and bonds (e.g. private market and real estate assets) offer the Fund other forms of diversification/returns with different risk premia. Diversification across asset classes and manager strategies that have relatively low correlations with each other will tend to reduce the volatility of the overall Fund return.
4. Management Strategies: A well-balanced portfolio has an appropriate mix of passive and active investments. Passive, index-tracker style management provides low-cost exposure to equities and bonds, and is especially attractive in efficient markets. Active managers, capturing diversified investment styles, can add value over the long term, particularly in less efficient markets, and the Fund believes that, by following a rigorous approach, it is possible for the Fund's pooling partner, Border to Coast Pensions Partnership, to identify managers who are likely to add value, over the long term. Active management can be expensive but can provide additional performance. Fees should be aligned to the interests of the Fund rather than performance of the market. Active management performance should be monitored over multi-year rolling cycles and assessed to confirm that the original investment process on appointment is being delivered and that continued appointment is appropriate.

The Fund's key Responsible Investment (RI) beliefs are set out below:

1. The United Nations Sustainable Development Goals represent an appropriate foundation in terms of the Fund's overall RI approach
2. Taking account of RI considerations can provide investment opportunities, as well as identifying investment risks
3. The consideration of Environmental, Social and Governance, ESG, factors are to be incorporated into the portfolio construction process of all investments made by its investment managers.
4. RI considerations are important irrespective of asset class
5. RI considerations are important across all time horizons. This is true not just in terms of protecting and enhancing long-term investment return, but also increasingly in terms of the interests expressed by our stakeholders
6. ESG factors are relevant in the context of benchmarking, risk analysis and investment opportunity identification
7. Responsible management of RI Issues is a reputationally important issue
8. Climate risk - and the issues which contribute to it – is a significant direct and indirect concern to all stakeholders, and as a result the Fund's approach towards 'Net Zero' is a prominent area of focus
9. An 'Engagement with Consequences' approach is appropriate. This advocates the use of engagement over divestment as the means to promote the Fund's RI beliefs – however, selling an asset remains an option when it comes to inadequately addressed ESG concerns in the investments made by our managers
10. The Fund recognises the value in engaging collaboratively to leverage greater influence together with other investors who share the Fund's priorities through joint initiatives and organisations
11. The exercise of ownership rights through voting is an important part of implementing the RI beliefs.

What do environmental, social and governance (ESG) factors include?

ESG factors include Environmental issues such waste production, climate change, pollution and general kind of environmental behaviour. Social factors include consideration of how companies treat their workers and their approach to diversity in the workforce. Governance factors consider the company structure and how well the company is run.

Has Surrey Pension Fund carried out any work to assess companies ESG credentials?

The Fund has mapped the portfolio in accordance with the United Nation Sustainable Development Goals (SDGs). The SDGs were set up in 2015 by the United Nations General Assembly and addresses global challenges including those related to poverty, inequality and climate.

What is Net Zero and what is Surrey Pension Fund's target?

Net zero is the Fund's commitment to work in a comprehensive manner to help deliver on the goal of the Paris Climate Agreement to keep global warming below 1.5°C. Surrey Pension Fund has set a Net Zero target of 2050 or sooner.

Why does the Fund favour engagement over divestment?

The Fund adopts a strategy of engagement with consequences to influence the behaviour of companies it invests in and enhance value, rather than adopting a strategy of divestment. Engagement allows the Fund to use its influence as an active investor, with other like-minded investors, to improve ESG practices in investee companies - influence that would be lost through a divestment approach.

Surrey Pension Fund contracted Minerva Analytics to perform a mapping exercise against the United Nations Sustainable Development Goals (UN SDGs) in 2020.

The Fund opted to use the World Benchmarking Alliance's (WBA) SDG 2000 Benchmark to understand its starting position against the UN SDGs.

The companies targeted within the SDG 2000 have the most potential to deliver these goals and become leaders in their sector for others to follow as an example.

Initial findings from the Fund's mapping against the WBA SDG 2000 are summarised below;

• Approximately 63% of the Fund's equity and corporate bond portfolio holdings were also in the WBA SDG 2000 Index.
• The overlap against the WBA SDG 2000 is purely coincidental, but does present an opportunity to focus on these holdings, and how these companies are managed. Improving the management of these companies can allow them to make progress in aligning against the SDGs.

Further information can also be found on Page 62 of the 2021 - 2022 Annual Report (PDF).

The main objective when running a pension fund is to ensure that there are sufficient funds to pay for the benefits as they fall due and contributions are paid at an appropriate level.

The fund actuary will carry out regular actuarial valuations of the fund with the following objectives:

• To comply with legislation (it is mandatory to have an actuarial valuation every three years);
• To monitor the ongoing health of the fund (i.e. is there enough money to pay the pensions);
• To recommend appropriate contribution rates for employers;
• To monitor the actual experience of the fund against the assumptions made.

You may like to read our:

• Funding Strategy Statement
• Surrey Pension Fund Valuation Report (PDF)
• Investment Strategy Statement (PDF)
• Responsible Investment Policy (PDF)
• Task Force on Climate-Related Financial Disclosures (TCFD) report 2023-24 (PDF)
• Responsible Investment Consultation - Analysis (PDF)
• Responsible Investment Consultation - Textbox Comments (PDF)
• United Nations Sustainable Development Goals (UN SDGs) analysis.

Border to Coast Pension Partnership (BCPP) Holdings

The investments held through BCPP are all pooled funds.

Pension Pool Investment Funds - Border To Coast - Equities, Fixed Income, Private Markets

Newton Investment Management Equity Holdings

• 30 September 2024 (PDF)
• 31 March 2024 (PDF)
• 30 September 2023 (PDF)
• 31 March 2023 (PDF)
• 30 September 2022 (PDF)
• 31 March 2022 (PDF)

Legal & General Investment Management (LGIM)

The investment with LGIM is through pooled, passive index tracking funds.

Due to third party index licensing restrictions, detailed holdings cannot be published. Please refer LGIM's approach to Index Funds.

Relative Sector Positioning For Active Equity Portfolios

Surrey Pension Fund Equity Relative Sector Positioning as at 31 December (PDF)

UK Stewardship Code

The fund is a signatory to the UK Stewardship Code. The Code sets high standards of stewardship for those investing money on behalf of UK savers and pensioners. Becoming a signatory is a recognition of the work the fund has undertaken to become a responsible investor.

Our Stewardship Code report (PDF) shows how we meet the requirements to become a signatory.

Responsible Investment Policy

Responsible Investment (RI) is a fundamental element of the Surrey Pension Fund. After many Committee workshops and a full consultation with membership, employers and the public, our RI Policy (PDF) was approved In June 2023.

Responsible Investment Consultation

The RI policy consultation was launched on 12 September 2022 and closed on 6 November 2022. The consultation was run by the council's in-house consultation team and their analysis of the results is available on our website. There were over 7000 responses, of which over 1100 included written comments in the freeform text box. There were also 80 direct submissions outside of the consultation. 92% of the responses came through the members channel, 3% from employers and 5% used the public access survey.

In summary, there was strong support for all areas of the RI Policy. For each question, the average response rate within the Agree or Strongly Agree categories was 70%. No question had more than 7% in Disagree or Strongly Disagree combined. This report has been posted below, as have all of the text box comments, including the letters we received directly.

The Results

• Responsible Investment Consultation - Analysis (PDF)
• Responsible Investment Consultation - Textbox Comments (PDF)

In 2015, the Government set out plans to legislate that all assets of the 89 Local Government Pension Funds (LGPS) in England and Wales be pooled into a small number of larger asset pools. Surrey Pension Fund, with 10 like-minded Local Authority partners, established Border to Coast Pensions Partnership (known as "Border to Coast"), which is an alternative investment fund manager, authorised by the Financial Conduct Authority (FCA).

Border to Coast operates investment funds for the partner funds to invest pension fund assets, to assist in the implementation of investment strategies and asset allocation requirements. The assets under management across the eleven partner funds are valued at approximately £55 billion.

Surrey Pension Fund will continue to transition assets into Border to Coast, however the Pension Fund Committee will retain sovereign responsibility for setting the Investment strategy and asset allocation of the Pension Fund.