Agenda item

The Committee received a Pension investment update.

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

·         The performance of the fund managers needed to be put into the context of the worldwide performance of equity markets which had seen the worst performance since 2011

·         The Council was increasingly looking to invest in infrastructure and alternative assets including investment in UK ports, wind farms and solar energy. These investments performed in excess of the planned rate of return. However the reduction in the price of power had had an impact on the performance of these markets

·         Nomura had outperformed the index benchmark by +2.8% in the quarter which was ahead of their targeted outperformance. However there were issues around their passive investment in Australia. It was considered that the company could be doing better and should remain 'on watch'.

·         Capital International had had a good quarter outperforming the index benchmark and their performance targets. However despite this performance, there remained concerns about the companies processes and a sustained period of good performance was required to give the Council reassurance

·         JP Morgan had continued to struggle with an underperformance against their benchmark for the quarter. The Company had provided more convincing arguments to explain their methodology however their performance was still not improving. It was a challenging period for emerging markets which tended to be more volatile in nature.

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

·         Had the representatives of JP Morgan expressed any views about the performance of the Russian market? The Chief Financial Officer advised that JP Morgan had taken a firmer viewpoint about supporting investment in Russia as a good long term investment. The Russian market had performed well in the last quarter and regained some lost ground. It was reassuring that the company had put forward a more convincing argument than previously for their approach to investment

·         The Independent Adviser's report indicated that the emerging markets were relatively inexpensive investment opportunities. The Chief Financial Officer responded that when price against earnings was examined they did look inexpensive. However, he was cautious about the opportunities they presented because he queried whether this would be the new 'normal'. There were a number of micro-economic factors that would affect these markets in the future. He argued that it was appropriate for funds to be invested worldwide rather than focussed specifically to one particular area     

·         UBS appeared to have outperformed the market. Did this give weight to the argument for greater investment in passive management funds? In response it was commented that it might be that the passive management target for UBS was lower than for other more active markets. The Chief Financial Officer stated that the Council was relatively comfortable with smaller increases in performance against the Passive Index. Active fund managers were constantly pressed to outperform the market in accordance with their performance target. Schroders were the company that performed the most consistently. The Council was particularly satisfied with their practices which included monthly performance reports and extra 

·         It was requested that the Pension Fund Performance Chart be updated for future reports to show whether or not each investment company manager was exceeding their performance target.

 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 Committee be noted.