Agenda item

The Committee received an update on Pension Investments.

The report set out the relative performance and returns achieved by the fund's investment managers including: JP Morgan – Emerging Markets Equities, Capital International, and Nomura.

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

·         Nomura had been constantly underperforming however there had been a change of portfolio manager at the firm and they were now performing above the benchmark

·         Capital International had under-performed for some time however they had outperformed the index benchmark by 3.1% in the quarter ended 31 March 2015 and this improved performance had continued through April and May

·         The market performance of JP Morgan was being reviewed with a view to a potential fee reduction. A long term judgement needed to be made in relation to emerging markets because at present these were the worst performing across the world. The key was whether there was an upturn in the market and whether JP Morgan were able to take advantage of that because there was a concern that there style of working did not suit the market. There were a number of changes being made to the processes and the team at the firm. The Committee would be kept informed of progress

·         The North American market had performed particularly well this year whereas as other markets had fluctuated

·         The key points were that that the trend in investments was improving; fees had been cut; and the investment performance of JP Morgan needed to be monitored.

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

·           The report highlighted the performance of Nomura as an area that required a period of sustained outperformance before the manager was taken off 'watch' yet it would appear from the figures in the Independent Investment Adviser's report, that Nomura's performance was better than that of UBS. Why were the two firms treated differently? The Chief Financial Officer advised that UBS managed an account of £1.1 bn on a passive basis in developed markets that were very difficult to outperform. By contrast Nomura managed a smaller amount of money in a market where there was an expectation that active managers could outperform the index. In addition, due to the nature of its market and the additional resources required to carry out active management, Nomura were paid considerably more than UBS for their service and therefore focus was concentrated on their returns. There was a danger of chasing winners and catching losers therefore the temptation to constantly switch investments was resisted. Diversification in markets across the world was considered the best approach

·           Who was responsible for making decisions about investment strategies? The Chief Financial Officer advised that he had delegated authority to invest funds and move funds around within the Strategic Asset Allocations Policy

·           From analysing the fluctuation in market performance over a number of years, it was clear that it was important to get the right approach to investment allocation.

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.