Agenda item

The Committee received a presentation from Callum Campbell, Head of Client Services and Investor Relations and Jason Fletcher, Chief Investment Officer of LGPS Central.

In the ensuing debate the following points were raised:

·         Philip Hebson highlighted a concern expressed by member funds that savings were being prioritised by LGPS Central at the expense of good investment returns going forward. Jason Fletcher responded that 80% of the score allocated to any investment bid related to quality assurance and therefore price was only a small part of the consideration. He argued that LGPS Central had assembled a good mix of innovative investment managers with the ability to maximise returns for member pension funds

·         Philip Hebson highlighted a further concern expressed by member funds about the lack of transparency in terms of the ability of member funds to review the performance and fees of the investment managers. Jason Fletcher gave an assurance that LGPS Central was committed to being open and transparent. However there were certain aspects that by nature needed to remain confidential, for example investment manager's fees

·         Michael Hudson queried the basis for the investment allocation across the three proposed investment managers. He argued that the arrangements lacked transparency with member funds unable to exert influence or assess performance and value for money. Jason Fletcher indicated that LGPS Central could skew the funding of the three managers to a maximum of plus or minus 10%. The decision would rest with the Investment Committee. There was no scope for individual Funds to have a greater or smaller exposure to each of the three managers, with their differing investment styles

·         When was the decision taken and by whom to adopt a multi-manager approach to investment management because this approach had not been agreed by the Shareholders Forum? It was not an approach that this Fund had ever supported. Jason Fletcher responded that meetings had taken place with all partner funds in February to discuss investment management. By necessity there had had to be some form of compromise in the agreed approach

·         Concern was expressed that Worcestershire Pension Fund would lose its ability to influence how it wished to invest member funds. Jason Fletcher commented that the danger was that in taking account of each individual member fund's investment requirements, the Pool would be operating nine separate investment management strategies with the resultant additional costs and loss of economies of scale as well as a negation of the benefits of the pooling arrangements

·         Given that the investment funds would be split equally between the three investment managers, what would happen in terms of the investment mix if one of the managers performed particularly well and how would performance be reviewed? Jason Fletcher responded that the Investment Committee had some scope to be able to change the mix of investments to a limit of 2% over the 33% allocation. He argued that a rebalancing on the investment mix was a positive action for the pool

·         A degree of caution was expressed about the rebalancing approach to investment management in that it tended to reward failure especially where the partner fund had no say in the investment manager appointments. Jason Fletcher indicated that there was scope for over-performance by fund managers of up to 7%

·         In response to a query about the difficulties appointing a Global Equities Manager, Jason Fletcher commented that salary and location appeared to be a stumbling block for candidates. The introduction of more flexible working arrangements was being considered to attract potential candidates. He was confident that an appointment would be made soon

·         It was queried whether the location of LGPS Central in Wolverhampton had had a negative impact on recruitment and whether the Pool could consider locating elsewhere. Jason Fletcher indicated that it was important for the Pool to be located within its region but it was acknowledged that Birmingham would be a greater attraction for candidates

·         In response to a query about the progress made in the appointment of the Chief Executive, Jason Fletcher commented that the recruitment process was on track and an appointment was likely to be made by the end of the year

·         Concern was expressed that without a cost-sharing agreement, the breakeven point for partner funds could end up being further away. This agreement was vital for this Fund so that ongoing costs were known. Jason Fletcher indicated that the way in which the cost-saving model worked meant that there needed to be an initial investment of funds. As a result it would take some time for the cost savings to come through

·         Callum Campbell welcomed any feedback from member funds. LGPS Central would be circulating a monthly update bulletin to partner funds and an Annual Shareholders meeting would be held at the end of February

·         Philip Hebson indicated that the newly appointed Chief Executive would have an important role in engaging with officers and members from partner funds in a more constructive way than was currently being undertaken

·         There appeared to be a level of disquiet amongst partner funds, including this Fund about the lack of transparency and the investment management approach being taken by LGPS Central. 

RESOLVED that presentation provided by LGPS Central be noted.