Issue - meetings

This report prepared by P-Solve, provides details of the performance and the market value of the Council’s pension fund investments for the quarter ending 30^th September 2012. It is attached as Appendix 1.

John Conroy and Nikhil Aggarwal, P-Solve, presented an update on the 3^rd quarter performance of the pension fund, and gave a verbal update on the 4^th quarter. Mr Aggarwal said that quarter 3 had been on-risk, after a period in which attitudes had switched from quarter to quarter between on and off-risk.

In response to a question from Councillor Iggulden, Mr Conroy said that the on-risk, off risk parlance reflected the way in which market sentiment was reflected in shifts between asset classes: these shifts had intensified, both in scale and frequency, since the financial crisis. As part of this shift, a smaller group of assets, specifically the sovereign debt of a small group of countries, including the UK, had been identified as off-risk.

Mr Aggarwal said that improved sentiment reflected the decision of the US Federal Reserve to continue its quantative easing programme, and the increased liquidity provided by the European Central Bank. The change saw a fall in gilt prices and a rise in the value of equities. The quarter 4 position had been more stable than recent quarters, but there remained concerns that the recovery in on-risk asset prices did not reflect economic fundamentals.

Mr Aggarwal said that, as gilt prices were closely linked to the fund’s liabilities, this meant that the fund’s liability benchmark had fallen during quarter 3, and the fund as a whole had performed well. Mr Conroy said that the LGIM mandate had performed as expected in tracking the liabilities, and this was reflected in its fall. He added that it also tracked the Quarter 4 rise in inflation expectations.

Councillor Murphy asked about the recent changes in fund managers at Barings. Mr Conroy said that the asset allocation sector was, after a long period of eclipse, experiencing growth again. As a consequence, experienced managers were in demand. He said that P-Solve were unconcerned about the change in managers, as the head and deputy head of the fund remained in place, and the replacement appeared to have the relevant experience and background. He said that a larger concern, in light of the growing investment in the sector, was the quantity of funds under management. He said that, while there was still some way to go before Barings reached the figure at which P-Solve believed it would be appropriate to close the fund, a decision to breach that limit, in contravention of their stated intention, would raise questions about their ability to move with the speed that effective asset allocation required.

The Chairman asked whether, in the light of the macro position, Barings and Ruffer had operated with sufficient tactical aggression in their asset allocation, in particular in relation to the equities market. Mr Conroy said that the Barings mandate had achieved its benchmark over the period required, and that the fund retained a significant exposure to equities through the MFS and Majedie mandates. It was open to Barings to substantially increase the equities held by the fund, but Barings remained cautious  ...  view the full minutes text for item 40

This report prepared by P-Solve, provides details of the performance and the market value of the Council’s pension fund investments for the quarter ending 30^th September 2012. It is attached as Appendix 1.