Agenda and minutes

To approve the minutes of the meeting held on 21 November 2017.

RESOLVED:

The minutes of the meeting held on 21 November 2017 were approved and signed by the Chair.

Apologies of absence were received from Sue Hands (Interim Finance Manager, Pensions)

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.

The Pensions Board meeting held on 7 February 2018 was not quorate but an informal briefing session took place and the notes of that meeting are presented for information.

RESOLVED:

That the minutes of the meeting held on 7 February were noted.

The Committee will receive a presentation from Chris Bilsland, a non-executive director at the London CIV, who will discuss the future direction of travel for LCIV as well as providing a general update.

Chris Bilsland a non-executive director at the London CIV (LCIV), gave a presentation outlining three key areas which covered an operational and responsible investing update. Additionally, he showed slides that noted the future direction of travel of LCIV. Following a governance review that was commissioned from Willis Towers Watson by the London Local Authorities (LLAs) it was indicated a need for LCIV to change its governance arrangements and clarify its purpose and future strategy. A consultation process was therefore key to ensuring that the proposals were appropriate for London. The key steps in the consultation process were outlined. Additionally, the Chief Investment Officer of LCIV, Julian Pendock, had also left the organisation, with a search for a replacement yet to formally begin, pending the conclusion of the consultation process.

Councillor Michael Adam noted that he felt that LCIV was helpful for products such as UK and global equities as it had allowed the Council to retain investment managers and make tactical decisions around asset allocations accordingly. He said that if the Council had opted for the blended fund approach it would lose discretion for manager selection. This was an area of concern particularly as LCIV had not demonstrated experience in this area.

Chris Bilsland explained that the Council would still have a choice in appointing new managers.  However, once a new manager was selected to the platform it would be LCIV’s responsibility to make tactical changes to the fund allocation to ensure a maximum return. In the long term the Council would be able to see if the segregation of assets was beneficial via the blended funds approach.

Councillor PJ Murphy noted that the major concern was that LCIV lacked any clear business strategy over the short/medium and long term. Additionally, he questioned why LCIV had considered blending funds as an option as they currently didn’t have experience in this area. He asked if LCIV would be paying private sector salaries throughout the organisation to match the salaries offered by their private sector competitors. Chris Bilsland said that the chief executive salary may set the salary for the company, but the company was still exploring and developing its remuneration strategy. It may be necessary to pay market salaries.  However, with the advantage that some professionals would want to give back to society and were prepared to work for less than market remuneration. Furthermore, the LCIV were reluctant to recruit a permanent chief executive and chief investment officer until they were certain about their future strategy.

Councillor Guy Vincent asked what the current net asset value of LCIV was. Chris Bilsland said that he didn’t have this information to hand and would feed back to the Committee. Councillor Guy Vincent asked if the Council had recourse against poor decisions made by LCIV. He added that the Sub Committee had a primary fiduciary responsibility for pension funds and asked whether we were at risk of giving up control of the fund to LCIV but retaining responsibility if something went wrong.

Chris Bilsland  ...  view the full minutes text for item 5.

This report details the governance review carried out by Willis Towers Watson on the London CIV.

NOTE: This item was discussed in conjunction with Item 5 (London CIV Update), please see item 5 for points raised by Councillors.

Phil Triggs introduced the report and informed the Committee of the extensive governance review carried out by Willis Towers Watson on LCIV. The governance review highlighted several significant concerns and made a number of recommendations. He highlighted that the key concern was surrounding the engagement of a wide stakeholder base with conflicting priorities and managing these different groups to achieve joint outcome. There was a fundamental issue with the cost recovery model which was leaving LCIV underfunded and under resourced, especially in client relations and secretarial.

Additionally, the Chief Investment Officer of the London CIV Julian Pendock has also left the organisation, with a search for a replacement yet to formally begin. The London CIV were reluctant to recruit a replacement until they were certain about their strategy going forward. 

RESOLVED

That the Sub-committee noted the update

This report provides an update for the quarter that ended on 31 December 2017.

Matthew Hopson presented the report for the quarter that ended 31 December 2017 and noted that the risk register remained unchanged. The Chair noted that risk 14 (LCIV governance) needed to be reviewed and recommend that the rating to be increased to high.

Kevin Humperson said that over the quarter, the total fund underperformed its fixed benchmark by 0.5% on a net of fees basis. He noted that Deloittes continued to rate Aviva investors positively for its infrastructure capabilities. Aviva had a strong pipeline, with c. £30m of capital with guaranteed deployment to the Fund’s existing project and c. £580m of priority pipeline across new projects.  Aviva expected to draw down the queue over the course of the year, estimating that it could draw down on this fund’s commitment as early as the second quarter.

The Committee asked if there had been any savings following the Aberdeen and Standard life merger. Kevin Humperson said since the two businesses merged, Aberdeen Standard Investments (ASI) had put in place a formalised process where all potential transactions were reviewed and an ‘allocation policy’ applied where interest was expressed in the investment by more than one fund/ client portfolio. He said it was a great value creation bringing these businesses together and Deloitte continued to monitor ASI post-merger with the organisation currently during the integration.

The Committee asked if the Council’s equality portfolio was protected against market fall. Kevin Humperson said that the Council was unprotected but there was an opportunity to look at hedging some of the investment risks if required. Officers were asked to review the Council’s equity strategy and present it at the next meeting for wider discussions around the implications on funding levels.

   Action: Matthew Hopson/ Phil Triggs

RESOLVED

That the Sub-Committee noted the update.

This report provides an update of the AVC provider, Zurich Corporate Savings, transitioning their existing portfolio of London Borough of Hammersmith and Fulham Pension Fund Member assets to a new platform.

Matthew Hopson introduced the report and noted an update of the AVC provider, Zurich Corporate savings, transitioning their existing portfolio of the Council’s pensions fund member assets to a new platform. The transition aimed to provide members with a better service by utilising an online platform where members could check their benefits and receive up to date information.

Referring to page 36 of the agenda, Councillor Guy Vincent asked for further clarification to be sought on who they referred to as the ‘Trustees’ before the service agreement could be signed.

Action: Matthew Hopson

RESOLVED

That the Sub-Committee noted the update.

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.

This report contains the exempt elements of Item 5.

The exempt elements of the report were noted.

This report contains the exempt elements of Item 6.

The exempt elements of the report were noted.

This paper updates Members on the Fund’s approach to fossil fuel investment and any possibilities for divestment in the future.

Matthew Hopson presented the report and noted that the paper updated the Committee on the funds current approach to fossil fuel investment and any possibilities of divestment in the future.

Councillor Guy Vincent asked for an options analysis to be included in the report for engagement and asked how much would the fossil fuel investment cost. Matthew Hopson said that the membership would cost approximately £15,000 per annum. (this subsequently has been found to be £9k per annum).

The Committee asked how many London Boroughs had signed up to the Local Authority Pension Fund Forum (LAPFF). Matthew Hopson said that 73 out of 89 funds had opted for this option. In additional they had a considerable portfolio of success and looked on favourably by administrative authorities. The LAPFF had been recognised as one of the most influential UK investor groups due to its commitment to responsible and robust engagement.

Phil Triggs noted that the London Borough of Southwark was one of the first LGPS funds to make such a commitment and placed the fund at the forefront of sustainable fossil fuel aware investment. He explained that a decision must be based on investment factors and that it was not a risk-free process therefore consideration needed to be placed on this.

RESOLVED

a) That the Sub Committee approved the Pension fund signing up to become a member of the LAPFF

b) That the Sub Committee approved a reduced fossil fuel exposure plan to be drafted along with the next investment strategy review in consultation with the fund’s investment consultant.  

c) That the Sub Committee noted the pension funds current approach to fossil fuel investing.