Agenda and minutes

The members had before them:

A.    The Agenda papers (previously circulated); and

B.    The Minutes of the meeting held on 1 December 2017 (previously circulated).

None.

An apology was received from Mr R J Phillips.

Mr A Becker and Mr V Allison declared an interest as members of the Pension Fund.

Members of the public wishing to take part should notify the Head of Legal and Democratic Services in writing or by e-mail indicating the nature and content of their proposed participation no later than 9.00am on the working day before the meeting (in this case 16 March 2018). Further details are available on the Council’s website. Enquiries can be made through the telephone number/e-mail address below.

None.

To confirm the Minutes of the meeting held on 1 December 2017 (previously circulated – pink pages)

RESOLVED that the Minutes of the meeting held on 1 December 2017 be confirmed as a correct record and signed by the Chairman.

The Committee considered the Administering Authority – Administration update. The details were set out in the report.

In the ensuing debate, the following principal points were raised:

·         In response to a query, Bridget Clark, HR Service Centre Manager commented that the increase in membership brought about mainly through auto enrolment had been experienced by all employers within the Fund. She anticipated that the increase would not continue to increase at the same level in respect of deferred members in the future as a result of the change to the 2013 regulations which provides for members who leave the scheme with less than 2 years membership to receive a refund of contributions rather than create a deferred pension benefit

·         Were officers confident that Liberata would be able to provide the necessary year-end information on time? Bridget Clark responded that Liberata had a dedicated team working on the Pension Fund. Additionally, Sue Alexander, the interim Chief Financial Officer was having daily meetings with senior officers at Liberata. She was therefore confident that end of year timescales would be met. Sue Alexander added that Liberata had been very responsive to the demands for the necessary information

·         The Chairman indicated that this was the last meeting of the Committee that Sue Alexander would be attending as Interim Chief Financial Officer and he thanked her on behalf of the Committee for her contribution.

RESOLVED general update from the Administering Authority be noted.

The Committee considered the Pension Investment update. The details were set out in the report.

In the ensuing debate, the following principal points were raised:

·         Philip Hebson commented that since the last meeting, the value of the Pension Fund had increased to approximately £2.8bn. There was no way of knowing at this stage if the Fund had reached its peak value. However this was a healthy position particularly in respect of the funding level which was no longer in deficit. River and Mercantile had taken advantage of the volatility of the recent markets to increase the level of downside equity protection. The Committee should be aware that its approach to putting Managers 'on watch' amounted to a public naming and shaming exercise and might wish consider reviewing this approach

·         In response to a query about JP Morgan, Philip Hebson explained that the perception in the market of JP Morgan's approach to managing assets was improving

·         Now that the deficit had been eradicated, would employers be in a position to be able to reduce back-funding? Philip Hebson commented that there were a number of variables to consider before making such a decision, in particular the assumptions made by the Actuary and he would caution against undertaking such an approach

·         It was difficult to monitor performance of managers in emerging markets due to the nature and variables of that particular market place. 

RESOLVED that:

a)    the Independent Financial Adviser's fund performance summary and market background be noted; and

b)    The update on the Investment Managers placed 'on watch' by the Pension Investment Advisory Panel be noted.

The Committee considered the approach to Alternatives Investment. The details were set out in the report.

In the ensuing debate the following principal points were raised:

·         As LGPS Central would be responsible for the selection of managers to oversee the different investment areas from 1 April, why was the Fund looking at further investment at this stage? Rob Wilson advised that these proposed investments were in line with the Fund's investment Strategy and would form part of the discussions with LGPS Central regarding its approach to managing the Fund's portfolio in the future. Philip Hebson added that this investment formed part of a rolling programme of investment and it was important that the Fund continued with business as usual within certain parameters until LGPS Central assumed responsibility

·         Had the ethical guidelines in relation to investments in fossil fuels changed? Philip Hebson advised that previous guidance stipulated that Funds had a fiduciary duty to maximise returns for their members. However the rules had changed which watered down slightly this fiduciary duty and created a degree of ambiguity around investment in fossil fuels

·         How vulnerable was the Fund to single events as a result of its investments in the bonds market? Philip Hebson advised that the approach taken was to ensure that not too much of the Fund's investment was exposed to a particular investment class without being aware of the risks. It was the responsibility of investment manager to assess the appropriate level of risk exposure. It should be noted that investment in bonds was less risky than equity investment. 

RESOLVED that:

a)    the commitment of £25m to Hermes Fund II be approved, following the appropriate due diligence undertaken by Bfinance and sign off by the Pensions Committee Chairman; and

b)    A £65m allocation to a new corporate private debt mandate with EQT and associated amendment to the Fund's Investment Strategy Statement be approved.

RESOLVED that pursuant to Section 100A of the Local Government Act 1972, the press and public shall be excluded from the meeting during item 8 on the grounds that there would be disclosure to them of information relating to the financial or business affairs of any particular person (including the authority holding the information) and the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

Summary of the proceedings of the meeting during which the press and public were excluded. (This is a fair summary of the proceedings and there are no exempt minutes.)

The Committee considered the Equity Protection Strategy. The details were set out in the report.

The Committee received a presentation by Mark Davies and Jason Wood from River and Mercantile.

In the ensuing debate, the following principal points were raised:

·         Mark Davies explained that the Equity Protection Strategy had been implemented according to plan at the appropriate price. The process had been split into three smaller more manageable tranches. This allowed the counter-party to be able to off-load risk as necessary. In addition, as a result of the volatility of the market, an increased level of downside equity protection had benefited the Fund

·         In response to a query, Mark Davies explained that in a volatile market, investors became more anxious and as a result it was beneficial to take on more risk and this afforded more equity protection

·         In response to a concern about the Synthetic Structured Equity approach, Mark Davies explained that this approach provided the necessary collateral protection for the Fund, through a package of gilts, to give the counter-party the assurance that the Pension Fund could offset that risk

·         In response to a query about the use of counter-parties, Mark Davies explained that it was important to negotiate with more than one counter-party but not too many. The trade was selected on the basis of the cheapest price available. It was therefore beneficial to create a price tension between a small number of counter-parties without making too much information about the Strategy available to the wider market which would be counter-productive.    

RESOLVED that the implementation of the Equity Protection Strategy update be noted.

The Committee considered the LGPS Central update report. The details were set out in the report.

The Committee received a presentation by the Non-Executive Chair, Joanne Segars and Chief Executive Officer, Andrew Warwick-Thompson of LGPS Central.

In the ensuing debate, the following principal points were raised:

·         Was it reasonable and sensible to set up the LGPS Pooling arrangements in such a short timeframe? Joanne Segars acknowledged that the timescale was short however she would not have agreed to the activation of the Pool arrangements on 1 April if she did not think that everything was ready and in accordance with the necessary financial regulations. Andrew Warwick-Thompson added that it was not possible to take over the whole £40bn investment from the outset but instead a rolling programme of investment would be introduced

·         In response to a query about the decision to maintain split site offices in Wolverhampton and Matlock, Derbyshire, Joanne Segars explained that the split site arrangements had been introduced largely to coincide with the location of existing staff members. This approach would be reviewed in the future

·         Due to the geographical location of the offices, there was an impression that the culture of the Pool would be dominated by the West Midlands and Derbyshire Pension Funds. In response Joanne Segars commented that she was very clear that the Central Pool was not the West Midlands Pension Fund but a new entity and this was the approach being taken

·         In relation to the governance and ethos of the Pool, was it anticipated that the Shareholders Forum would have an influence over the Board and its thinking? Andrew Warwick-Thompson responded that the initial focus had been on the Derbyshire and West Midlands Pension Funds out of necessity because they were the first funds to be launched. All the executive team had been recruited from outside those funds and of the Investment Directors, roughly half had been recruited from partner funds and half from the private sector. It was anticipated that as product development progressed, partner funds, who had not been as involved up to now, would be brought into the process. The importance of meeting the objectives of all partner funds going forward was recognised

·         In response to a query, Andrew Warwick-Thompson commented that the Pool would be providing an advisory service on all investment matters to all partner funds. This service could be extended to cover governance issues if desired

·         There was no position set aside within the structure of the Pool, with direct responsibility for communications. Joanne Segars explained that communication was the responsibility of all Board members. She added that she was keen to work with all elected members and Shareholder representatives

·         There was a degree of uncertainty about the scale of the cost of the transition arrangements. Would the Pool be appointing transition managers on a case-by-case basis?  Andrew Warwick-Thompson responded that the best practice advice suggested that different transition managers should be appointed. Help would be provided but the intention was for individual funds to  ...  view the full minutes text for item 118.