The Pension Fund Management Panel decides on the investment policy most suited to meeting the pension liabilities being built up and has ultimate responsibility for investment strategy, including how much to allocate to each asset class. It must agree on an approach to investing and to investment risk and publish its approach in an ‘Investment Strategy Statement’ in accordance with the Local Government Pension Scheme (LGPS) Regulations.

It has a fiduciary duty to both scheme employers and members. The choice of investments may be influenced by wider considerations (such as social or environmental). An administering authority must consider whether its views on investment considerations are widely shared by employers and members. However, the financial return must always be the primary aim for any investment decision and other benefits (such as local social) must take a secondary position.

Risk is inherent in any investment activity. The Management Panel’s overall approach is to seek to reduce risk to a minimum where it is possible to do so without compromising returns. It does this by making decisions such as to diversify across investment managers or types of investment to spread risk.

Transition risk in relation to climate change refers to the risk that policy action taken to transition an economy away from fossil fuels may reduce the value of or the income generated by assets currently held.

Each fund must prepare and publish an Investment Strategy Statement following regulation 7 of the LGPS (Management and Investment of Funds) Regulations 2016. It must review and revise it from time to time and at least every three years, publishing a statement of any revisions. These regulations state that it must contain:

• a requirement to invest fund money in a wide variety of investments
• the administering authority’s assessment of the suitability of investments and types of investments
• the administering authority’s approach to risk, including the ways in which risks are to be assessed and managed
• the administering authority’s approach to pooling investments, including the use of collective investment vehicles and shared services
• the administering authority’s policy on how social, environmental and corporate governance considerations are factored into the selection, non-selection, retention and realisation of investments
• the administering authority’s policy on the exercise of the ri

There is no requirement to include the Fund’s target return within the Investment Strategy Statement.

The Northern LGPS is responsible for the day to day management of several areas of investment. The main benefit of investment pooling is the cost savings that are generated through economies of scale and the use of combined resources. The Northern LGPS focuses on collective investments in alternative assets, such as private equity and direct infrastructure.

The pool must implement the funds’ investment strategies, and is responsible for:

• The selection, appointment, dismissal, and variation of terms of investment managers, whether internal or external.
• The management of internally managed investments.
• The provision and management of pool vehicles including pool funds.

Key considerations when selecting an investment manager would normally be:

• The size and experience of the investment team.
• The management and performance fees.
• The investment philosophy and process.

A custodian is a financial institution that holds clients’ securities for safekeeping. GMPF’s custodian is responsible for several tasks including storing and safeguarding assets, reclaiming tax on income from investments and liaising with investment managers regarding their trades.

ESG stands for Environmental, Social and Governance. An investor may consider ESG matters when investing. Many investors are interested in the impact their investment has on the environment and society. They may also be interested in how those companies are being run. ESG factors are important in the longevity of a company and its success. They have the potential to significantly influence a company's financial performance. Therefore, GMPF needs to have a clear policy and approach to ESG.

In formulating and maintaining a policy on ESG factors, the administering authority should:

• take proper advice
• explain the extent to which the views of the local pension board and other interested parties will be considered when making an investment decision based on non-financial factors
• explain the extent to which non-financial factors will be considered in the selection, retention and realisation of investments, and
• explain their approach to social investments.

Weighted average carbon intensity (WACI) is a measure of the average emissions of greenhouse gases emitted per $m revenue by a portfolio of companies, weighted by the capital invested in each company.

Active management typically involves the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their judgment and experience in making investment decisions on what securities to buy, hold and sell.

The opposite of active management is passive management, also known as indexing. Passive management is a style of management associated with mutual and exchange traded funds (ETF) where a fund's portfolio mirrors or tracks a broad market index. Securities are held in proportion to their size.

Alpha and beta are two of the key measures that investors use to evaluate the performance of a stock, a fund or an investment portfolio. Active managers generate alpha. This is the amount that an investment has returned in comparison to the market index or other broad benchmark that it is compared against. Beta measures the volatility of an investment. It is an indication of its relative risk.Volatility is the level of fluctuation in the investment returns of an asset over time in normal circumstances.

Pooled funds are funds in a portfolio from many individual investors that are aggregated for investment. Mutual funds, hedge funds, exchange traded funds, pension funds and unit investment trusts are all examples of professionally managed pooled funds. Investors in pooled funds benefit from economies of scale, which allow for lower trading costs per pound of investment and diversification.

Segregated mandates are a written agreement between a client a fund manager, in which the client states how they want the fund manager to look after their investments. The mandate means the money is kept separate from other investments and the fund manager invests in line with the requirements set out in the mandate.

The Markets in Financial Instruments Directive (MiFID II) is a legislative framework of trading venues and structures in which financial instruments are traded. The main objectives of MiFID II include the pursuit of harmonised regulation across EU financial markets, increased competition between EU financial markets, ensuring appropriate levels of investor protection, and strengthening of supervisory powers.

MiFID II re-classified local and public authorities as retail investors from 3 January 2018, limiting the types of products that funds may invest in. For funds to access a broader range of investments, asset managers are required to test whether the Committee/Panel have the correct level of expertise, experience, and knowledge to make investment decisions and understand the risks involved.

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet. They are classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations. An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.

Income assets are those which generate a high proportion of returns in the form of income. A fully let office building or an operational toll road would both potentially be examples of this, whereas equity in a new business or non-performing loan would not.

An absolute return objective aims to deliver a positive return, regardless of broader market conditions.

An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments that often behave similarly to one another in the marketplace.

Equities (such as stocks), fixed income (such as bonds), cash and cash equivalents, real estate, commodities, and currencies are common examples of asset classes. There is usually very little correlation, and in some cases a negative correlation, between different asset classes. Financial advisors focus on asset class to help investors diversify their portfolios.

High-yield bonds are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they pay a higher yield than investment-grade bonds to compensate investors.

The Global High Yield strategy invests in high yielding bonds globally to achieve superior returns by generating alpha from diligent market and security selection. This approach aims to offer investors an active, truly global, and flexible approach to sub-investment grade markets. Investing across the globe allows portfolio managers to exploit opportunities by identifying global trends and positioning the portfolio through credit cycles across the different regions. Investment managers may believe that a global approach is superior to a regional one as no market consistently outperforms the rest; furthermore, the greater breadth of opportunities should give an active manager more scope for adding value.

You would expect Global High Yield Bonds to most effectively diversify the risks associated with a portfolio of equities listed on the London Stock Exchange. However, other options may also provide a level of diversification away from UK Equity.

First comes asset allocation, so making sure your money is in the best asset classes, then making a choice between active and passive management (with passive generally being lower cost over the long term), and lastly the mechanism of the mandate.

In liquidation, creditors are paid according to the rank of their claims. In descending order of priority these are:

1. Fixed charge holders
2. Liquidators' fees and expense.
3. Preferred creditors (debts such as rent due, wages and salaries, or unpaid tax)
4. Floating charge holders
5. Unsecured creditors (debts where the lending has not obtained any security over the assets)
6. Interest incurred on all unsecured debts post-liquidation
7. Shareholders

If a company is liquidated, debts (senior, mezzanine, junior) will normally be paid before equity (stakeholders).