Agenda and minutes

To approve the minutes of the previous meeting held on 21 September 2016.

The minutes of the meeting held on 21 September 2016 were agreed as a correct record and were signed by the Chair.

There were no apologies for absence.

If a Councillor has a disclosable pecuniary interest in a particular item, whether or not it is entered in the Authority’s register of interests, or any other significant interest which they consider should be declared in the public interest, they should declare the existence and, unless it is a sensitive interest as defined in the Member Code of Conduct, the nature of the interest at the commencement of the consideration of that item or as soon as it becomes apparent.

At meetings where members of the public are allowed to be in attendance and speak, any Councillor with a disclosable pecuniary interest or other significant interest may also make representations, give evidence or answer questions about the matter.  The Councillor must then withdraw immediately from the meeting before the matter is discussed and any vote taken.

Where Members of the public are not allowed to be in attendance and speak, then the Councillor with a disclosable pecuniary interest should withdraw from the meeting whilst the matter is under consideration. Councillors who have declared other significant interests should also withdraw from the meeting if they consider their continued participation in the matter would not be reasonable in the circumstances and may give rise to a perception of a conflict of interest.

Councillors are not obliged to withdraw from the meeting where a dispensation to that effect has been obtained from the Audit, Pensions and Standards Committee.

There were no declarations of interest.

Peter Carpenter presented the report and noted that Melanie Stephenson of Barnett Waddingham had attended to update the Sub-Committee on progress with the 2016 actuarial valuation. A draft funding strategy statement reflecting the changes to the CIPFA guidance was presented for consideration.

Melanie Stephenson presented an updated version of the slides at appendix 1 of the report. She noted the following points:

·         The overall picture was positive – the funding level for the whole fund had increased to 87 percent.

·         Section 13 of the Pensions Act provided for an independent review by the Government Actuary Department (GAD) – they would be looking at compliance, consistency, solvency, and long term cost efficiency.

·         Section 13 was introduced to improve governance and give people a better understanding of how funds were performing in relation to each other.

·         The LBHF fund was around the middle of the pack of funds that had reported so far.

Councillor PJ Murphy asked what the risks of non-compliance were regarding Section 13. Melanie Stephenson responded that the main risk was reputational as GAD’s reports would be made public. If a fund was considered to be failing in their duties they could recommend higher payments but that would only happen in extreme cases.

Councillor Michael Adam asked how it could be that in 2013 the fund was 83 percent funded and in the top 25 percent of funds but in 2016, at 92 percent funded with the new S13 valuation, it looked to be in the lower middle percentile. Melanie Stephenson responded that not all funds had reported in yet and it was likely that the better performing funds reported first. A large proportion of the funds that had reported were in the 90 to 100 percent funded range so the LBHF fund’s position was relative. Councillor Adam commented that the data presented didn’t tally with the message from Government that the LGPS was in trouble.

Councillor Nicholas Botterill asked what the changes were to the discount rate. Melanie Stephenson said the rate had come down from 6 percent in 2013 to 5.4 in 2016 as the expectation of future investment returns had come down. While the funding level had improved the future service rate had gone up – i.e. the cost of benefits would be more expensive.

Councillor PJ Murphy commented that the low expected returns seemed out of sync with historical data. Melanie Stephenson said her firm used yields from investment markets and projected forward, the expectations were that they would be lower than they have been in recent years.

Councillor Michael Adam asked for clarification on why, if the fund was 92 percent funded and investment returns had been consistently good recently, hadn’t liabilities reduced more. Liabilities seemed to have grown with asset growth. He also noted that some of the assumptions seemed highly unlikely – e.g. assuming a 4 percent increase in salaries. Melanie Stephenson responded that while markets had been performing well recently the figures presented represented a prudent long-term view with continuing expectations  ...  view the full minutes text for item 4.

Peter Carpenter presented the quarterly update pack for the quarter ended 30 September 2016. He noted that the afternoon sessions meeting the fund managers had sufficiently covered the updates in the report. The Committee agreed that it had been a good exercise and noted that there were no concerns with any of the managers.

RESOLVED

That the report was noted.

Councillor PJ Murphy suggested it would be useful for the Pensions Board to have a session to meet with the fund managers.

RESOLVED

The Sub-Committee recommended that the Pensions Board had a session with the fund managers.

Peter Carpenter presented the report and noted that LGIM portfolio was now fully invested in the All World index after the cash being held for emerging market equities was invested in October 2016. The London CIV had agreed with Majedie for the UK equity fund to be available on the platform. The report recommended that the whole of the current Majedie portfolio was transferred to the CIV on a base plus performance fee basis, saving an estimated £104,000 per annum. The advice from Deloitte was to pay a flat rate fee plus performance.

Councillor Nicholas Botterill asked why Deloitte were recommending a flat fee. Kevin Humpherson responded that the flat rate was slightly lower than the current rate and they expected the fund to outperform.

Councillor PJ Murphy asked if the Council could modify the management fee if the fund manager changed. Kevin Humpherson said he would check and provide that information after the meeting.

Councillor Michael Adam asked what the average fee was, including performance. Kevin Humpherson said it was very close to the fee cap, between 90 and 110 basis points.

RESOLVED

1.    That the Sub-Committee agreed to transfer all the assets currently managed by Majedie Asset Management Equity fund to the CIV Majedie Equity Fund when it became available. That the Majedie Focus and Tortoise funds be looked at in terms of balances that could be used to ‘rebalance’ the overall investment portfolio back to the planned distribution.

2.    That the Sub-Committee agreed the fee basis for the Majedie UK Equity fund as base fee only.

Peter Carpenter presented the report and noted that the Investment Strategy Statement will have to be in place by the end of March in time for the new financial year in April. He also noted that as part of this, the sub-committee would be required to review its policy on ethical, social and corporate governance issues. He advised that the London CIV should be invited to the next meeting to discuss their governance arrangements and how the interface between Councils, the CIV, and fund managers would work in practice.

RESOLVED

1.    That the sub-committee noted that a draft Investment Strategy Statement (ISS) prepared in accordance with the revised investment regulations and guidance will be presented to the 15th March 2017 meeting.

2.    That the sub-committee discussed the requirement for greater detail on environmental, social and corporate governance (voting) matters including greater consultation with interested parties, including the Pension Board, which will have to be reflected in the ISS.

3.    That a meeting be set up in January to ascertain Members views in relation to investments and Risk to feed into the new Funding Strategy Statement and Investment Strategy Statement.

Peter Carpenter presented the item, noting that the first of the fund manager monitoring sessions took place on 12 October 2016 with five fund managers attending to brief the committee on their performance and outlook for the future. The main issue arising from that session was the negative outlook for equity markets and likely future returns. The second session with the remaining fund managers took place prior to the sub-committee meeting on 30 November 2016. He asked members for their feedback on the sessions.

Councillor Adams noted that he liked the format but felt there was no need to have two sessions per year if performance was good. There should instead be one annual session with managers invited to attend again if they had underperformed.

RESOLVED

That the report was noted.

The next meeting was scheduled for 15 March 2017.

The Committee is invited to resolve, under Section 100A (4) of the Local Government Act 1972, that the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined in paragraph 3 of Schedule 12A of the said Act, and that the public interest in maintaining the exemption currently outweighs the public interest in disclosing the information.

RESOLVED

That under Section 100A(4) of the Local Government Act 1972, that the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined in paragraph 3 of Schedule 12A of the said Act, and that the public interest in maintaining the exemption currently outweighs the public interest in disclosing the information.

The exempt elements of the report were noted.