Agenda and minutes

The Members had before them:

A.    The Agenda papers (previously circulated); and

B.    The Minutes of the meeting held on 3 February 2016 (previously circulated).

A copy of document A will be attached to the signed Minutes.

None.

Apologies were received from Mr R J Sutton.

Mr R J Phillips declared an interest as a member of the LGPS Advisory Board.

Members of the public wishing to take part should notify the Director of Resources 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 26 April 2016). 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 3 February 2016 (previously circulated – pink pages).

RESOLVED that the Minutes of the meeting held on 3 February 2016 be confirmed as a correct record and signed by the Chairman.

The Committee considered the preferred pool structure for the LGPS Asset Pooling arrangements.

The Chief Financial Officer introduced the report and made the following comments:

·         The Pension Fund's Strategic Asset Allocation currently exceeded the Government's current implied target - 4% level of investment in Infrastructure

·         The Government had provided a strong steer that it believed that the Combined Asset Pool (CAP) would not be a workable approach to pool governance

·         One Fund – one vote remained a key principle of the LGPS Central pool

·         Each pool was required to provide the Government with its proposed structure, an implementation plan and a robust business case by July 2016

·         All cost forecast to be incurred prior to July 2016 with regard to developing the pooling arrangements were within the Chief Financial Officer's delegated spending limits as set by this Committee

·         The first key decision that the Committee would need to make concerned the legal and governance structure for the Pool. Eversheds were recommending a Collective Investment Vehicle option rather than a Combined Asset Pool option. Under the CIV governance arrangements, assets would be held in the Pool and each Pension Fund would be able to buy individual units. The CAP governance structure would involve collective procurement arrangements and although the Pension Fund retained ownership of the assets, it would require FCA registration

·         Officers reconfirmed that theyhad a close working relationship with colleagues in other Pension Funds within the proposed LGPS Central asset pool and therefore it seemed appropriate to join up with this pool of like-minded bodies

·         Officers from the different Pension Funds within the Central Pool had agreed that the CIV was the most appropriate governance structure for the Pool at a fund level or were taking that proposal to their fund governance at the same time we were

·         The Government was considering creating a separate pool to hold infrastructure investments. Other pools would then be allowed to access it. Roger Phillips added that the LGA had queried with the Government how an infrastructure pool would operate  

·         The possible draw backs of entering into a CIV governance structure was that it would be more expensive to operate under FCA regulation, the potential impact on staff, the dilemma as to whether to develop an in-house CIV or buy one "off the shelf", and the need for appropriate procurement arrangement for contracts

·         The benefits of the CAP governance structure was that it would be cheaper to operate, the Pension Fund maintained control of its assets and although there would be limitations over the long term they would not be as great as under a CIV governance structure

·         The Government had indicated that as a minimum it would wish to see a single entity at the heart of any proposals for pooled assets

·         Deloitte, supported by Eversheds had been employed to look at the options for buying or buying, renting or developing LGPS Central's own CIV. A business case was being developed and a number of workshops would be set up

·         A  ...  view the full minutes text for item 38.

The Committee considered a Pension Investment update.

The Chief Financial Officer introduced the report and made the following comments:

·         Nomura had been moved from being formally 'on watch' to 'being monitored' given the improvement in performance, however this trend needed to be sustained. A number of changes had been made to their team, particularly the change of manager which had improved the level of confidence in their work. Although performance had improved recently, it was still not sustained over a longer period and therefore their performance should continue to be monitored

·         Capital International had been underperforming over a 10 year period. They tended show the same pattern of performance whereby they recovered slowly from a period of poor performance but then failed to maintain that level of performance. They had been asked for a sustained improvement in performance but this had not materialised. Confidence had been lost in the way the investment decisions were made and their decision-making processes. It was recommended that its mandate be withdrawn and that the funds be placed in passive investments in the US under management by LGIM pending a review within the Strategic Asset Allocation later in the calendar year

·         The performance of JP Morgan – performance had shown some improvements but it was recommended that they remain 'on watch'

·         JP Morgan – Bonds always achieved above benchmark but not above their performance target. They had argued that they had justified their fee but this was not felt to be the case. The Asset Allocation and manager role would be reviewed within the Strategic Asset Allocation

·         The contracts had been signed with the Walton Street Fund committing the remaining £27.5m out of the original £200m allocation to Property and Infrastructure.    

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

·         Capital International did not seem able to sustain any consistent winning performance and therefore it was appropriate to end their mandate

·         In response to a query about whether the performance of Capital International was sufficiently poor to justify termination, the Chief Financial Officer explained that Capital International had a target to outperform the benchmark by 1 ½% over a 3 year period. However Capital had struggled to achieve this and at some times were not even achieving performance that would have been achieved in a Passive delivering tracker fund.  The reason that their performance in absolute terms was above the performance of the LGIM portfolio was that the US market had gone up and therefore there was more absolute return in the US portfolio, however their active management had not delivered the performance target. At present, it was recommended that the funds remain in the passive market until a decision was made in the autumn whether to reinvest in the US market in an active sense.   

RESOLVED that:

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

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

c)    the recommendation from the  ...  view the full minutes text for item 39.

The Committee considered the Administering Authority – Administration update.

The HR Service Centre Manager introduced the report and made the following points:

·         The increase in membership was as a result of members not choosing to opt out of the scheme following the introduction of auto-enrolment. It was anticipated that due to transition arrangements there would be an increase in the number of members in the current cycle up to 2017

·         From 6 April 2016 the LGPS was no longer contracted out. Members and employers would no longer receive the NI rebate and would see a rise in NI contributions

·         Employers had been requested to forward their End of Year returns to the Pension Fund by 30 April 2016. Employers have been advised that the Pension Regulator would be informed where an employer had not completed the Annual Benefits Statement which could result in a fine which the Fund would pass onto the Employer

·         A good response had been received from employers, particularly from Academies to the request for information for the Pension Fund Valuation. Mercers had looked at the key changes to the Valuation of liabilities and provided a more reasonable assessment. This had been explained to employers

·         Work had been carried out with the Department of Work and Pensions to devise a 'Tell Us Once' system which would reduce administration for grieving relatives and reduce the level of administration costs

·         A newsletter for employees and employers had been devised in liaison with partner funds. It was intended that the formatting and feel of the newsletters would be improved to make it more appealing to members. Discussions were being held with the Brand Manager to establish a logo for the Fund 

·         Following an options appraisal, the Head of HR and Organisational Development and Chief Financial Officer would determine the best option for Member Self-Service. Member Self-Service would have a positive impact for the Administering body in terms of reduced costs and for members in terms of their ability to access information

·         Following feedback from employers at the Administration Forum, the Administering Authority was currently developing a new workshop for new employers.  The workshop would enable the Administering Authority to explain the roles and responsibilities of the Fund and the new employers, to share information about key activities which take place during the year and be an opportunity to meet key staff.

In the ensuing debate the following principal points were raised:

·         What was the biggest/most difficult challenge facing the administering authority? The HR Service Centre Manager explained that the changes to the administration of the fund as a result of the introduction of the CARE regulations had been a particular challenge as well as explaining the changes to members

·         Were there implications for the Administering Authority of providing individual pension statements for members?  The Chief Financial Officer stated that it was possible that the administration requirements would increase and that the current cost of the service could not be maintained.

RESOLVED that the general update from the Administering Authority be  ...  view the full minutes text for item 40.