Agenda item

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 2010.

Helen Smith, P-Solve, introduced the report, which set out the performance of the Council’s Pension Fund in the period to 30^th September 2010. Fund growth had been strong compared to the 2^nd quarter, with the value of the fund at the date of the meeting up to £577 million. She noted the rise in the liability benchmark in 2010-11, due to strong gilts prices, and the consequent impact on fund managers’ ability to exceed the benchmark.

With regard to the Legal & General mandate held within the Matching Fund, Simon Jones updated the Committee on negotiations with Legal & General regarding the requested inflation and interest hedging product. The Council had first agreed to purchase a product that hedged against both inflation and interest rate rises in the first quarter of 2009, but market conditions had instead necessitated the purchase of a very long-dated gilt. Over the last three months, P-Solve had held discussions with Legal & General about the implementation of the original mandate, though as a hedge against inflation only. Legal & General had made a proposal, which P-Solve was reviewing. Legal & General were concerned that the product, which would be bespoke to the Council’s requirements, would require a higher fee.

In response to a question from Councillor Ginn, Simon Jones clarified that the Council paid higher fees where the work was of higher value; a passive holding, such as the long-term gilt currently held, drew a smaller percentage fee than the proposed new investment. Pat Gough, Assistant Director of Finance, confirmed that a variance in the fee charged, within the existing mandate, would not require the mandate to be retendered.

Eugenie White asked if the principle behind the mandate was still sound. Simon Jones said that he recommended the implementation of the modified mandate, adding that the Council was not the only source of demand for a similar product.

Councillor Murphy asked whether, in view of Legal & General’s failure to meet the Council’s demands, it would be appropriate for the mandate to be retendered, and if not, when a decision might be reached. Simon Jones said that he felt that Legal and General would meet the Council’s demand, and that a definitive answer would be given at the Committee’s next meeting on the matter.

Eugenie White asked about the performance of MFS and Majedie. Bob Pearce, Group Technical Accountant, said that only Majedie received a performance fee which is assessed over rolling three-year periods, meaning that recent underperformance would require future over performance if Majedie were to continue to draw performance fees.

He also updated on the performance of the private equity investments made by the Council, which made up approximately 2% of the fund. The Council received quarterly updates from the managers and the investments had generally performed well, given the economic circumstances since their inception. Officers agreed to circulate a more detailed update on the private equity elements of the fund to members following the meeting.

Councillor Murphy asked whether MFS’ performance had been over reliant on currency effects. Helen Smith said that performance had benefited from their exposure to the dollar, and that the Council did not necessarily wish the investments made in emerging markets to be hedged against currency changes, as this formed part of the investment strategy.

Councillor Murphy then asked about the concentration of gold held by Ruffer, and whether this was considered too high. Helen Smith said that the portfolio was well-diversified, and that while gold prices may not trend upwards, they would not fall to the level of 5 years before.

RESOLVED THAT

The report be noted