Agenda item

The Committee received a Pension investment update.

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

·         As requested at a previous meeting, the Pension Fund Manager performance chart now gave an indication of the required benchmark performance for each manager

·         Capital International were performing below the benchmark performance and although they had had a good year, it was recommended that they remained 'on watch'. The company had had a particularly bad year in 2008/9 and continued to struggle as a result. Their portfolio tilted towards consumer type products and with the USA economy improving, their performance was improving

·         It was still recommended that Nomura remained 'on watch' as their performance was just at the benchmark level. They had had a difficult period from 2009-12. Their Japanese portfolio was doing well (albeit with some recent difficulties) and their emerging markets portfolio was starting to improve. However they held passive investments in Australia and had failed to find an appropriate manager. The Council had negotiated a fee reduction as a result

·         JP Morgan Bonds had now been placed 'on watch' by the Pension Investment Advisory Panel. It was felt that the Fund managers did not challenge performance, were satisfied with achieving just above the benchmark and were not prepared to take risks. He would continue to push managers to improve performance. It was a small portfolio with only 6% of the Pension Fund being invested in bonds. Bonds tended not to have much liquidity and were over-inflated

·         UBS passive investments tracked the market and therefore their performance tended not to vary very much

·         JP Morgan Emerging Markets were now performing above the bench mark but had not reached their performance target and as a result, a fee reduction had been negotiated

·         Schroders were performing above the benchmark and their performance target

·         Overall, the Fund's assets were performing better and where they were not, fee reductions had been negotiated

·         The Council was committed to a long term investment in equities despite the volatility in the market in the last quarter

·         Emerging markets tended to be more volatile and had gone through a difficult period however there was a long term strategy to invest in these markets and he recommended that the Fund continued to make such investments.    

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

·         Was the approach to investing undertaken by Schroders different to the other fund managers? The Chief Financial Officer stated that most fund managers invested in low stock that could rise, Schroders took a momentum approach to investing in stock whereby stock was selected on the basis of its movement in the market and in addition, they maintained a high turnover of stock

·         How often did the Pension Investment Advisory Panel review the Fund's investment Strategy? The Chief Financial Officer advised that a review of the Strategy was undertaken every three years. He had delegated authority to make certain amendments and any major changes in the interim would be reported to this Committee

·         In response to a query, the Chief Financial Officer explained that Walton Street was being considered as the potential property and infrastructure investment firm for £27.5m of the original £200m investment. Walton Street invested in US Property Debt. Due diligence checks were being undertaken but at present the Fund's assets lacked this element of high risk investment. He would report back to the Committee when a decision had been made. 

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.