Gwent pension fund takes £137-million ‘perfect storm’ hit

Saul Cooke-Black, local democracy reporter

A local government pension scheme serving Gwent has taken a £137 million hit amid “a perfect storm” of global events, including the invasion of Ukraine by Russia.

The Greater Gwent (Torfaen) Pension Fund – run by Torfaen council and whose membership includes staff from Newport, Monmouthshire, Caerphilly, Blaenau Gwent and Torfaen councils –  posted a negative return of -3.51 per cent in the period from January 1 to March 31 this year, equating to a fall in fund value of £137 million, to £3.761 billion.

A council report says that at the time of the invasion of Ukraine, the fund had “a relatively small (roughly 0.2 per cent) exposure to Russia”, with some indirect impacts felt.

This was written down to zero following sanctions imposed by the US, UK and EU governments on Russia.

At a meeting of the pensions committee on Monday, Elizabeth Carey, independent research analyst to the Gwent fund, said steep rises in inflation, changes to interest rates and other global financial issues had caused “a lot of volatility” in the first quarter of the year.

Ukraine

“Something of a perfect storm has erupted since the beginning of the year and particularly since the Russian invasion of Ukraine,” she said.

Ms Carey said she expected ‘volatility’ to continue into the second quarter of the year and “probably beyond”, but she warned against reacting to short-term performance changes.

“This is a really good reminder of why we are funding long-term liabilities,” she added.

Alexander Bull, head of pensions at Torfaen council, said the pension fund is investing on “a long-term basis”.

He said the fund had performed “very strongly over the last couple of years”.

On the first quarter’s performance, he said: “Although at a Greater Gwent fund level that performance was disappointing, it was generally a theme across all markets.”

A council report shows the Gwent pension fund posted a positive return of 5.95 per cent over a 12 month period, below the benchmark of 6.92 per cent.

Since its inception, the fund has brought a positive return of 6.39 per cent, slightly above its benchmark of 6.28 per cent.

The report adds that given the war in Ukraine and “utter disarray in some markets”, it would be ‘unwise’ to make investment decisions based on short-term moves.

“Perhaps the only lessons to draw at this point are the importance of diversification within the portfolio, the benefit of sticking to plans that were made with long-term objectives in mind, the need to remain agile and able to respond to new developments, and finally the imperative of rapid progress towards net zero in the real world,” it adds.