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 June 2011.

Helen Smith, P-Solve, introduced the report, which set out the performance of the Pension Fund in the quarter ending 30^th June 2011. At that time, the fund was valued at nearly £595 million, plus its private equity investments, though this figure had since fallen. She characterised the fund’s performance in the 2^nd quarter as reasonable but lacklustre, though she noted that both Majedie and MFS had shown improved performance. With regards to the Matching Fund, she said that Legal and General were unable to match their benchmark, given the terms of their mandate; as such, Goldman Sachs had a greater degree of culpability for the underperformance of the Matching Fund than Legal and General. In response to a question from Eugenie White regarding the underperformance against the benchmark, given the way that the fund’s holdings were concentrated in index-linked gilts, Helen Smith said that the benchmark was complex, and that the mandate was being undertaken in the way the Council had requested: the proposed adjustments to the Legal and General mandate would address the issue.

Councillor Murphy asked why the implementation of the revised mandate had taken nearly 12 months, given that the speed of implementation was one of the reasons for working with L & G. Ms Smith said that counsel’s opinion on the proposal’s legality had taken 6 months to acquire, with further negotiations about the structure of the mandate and its benchmarking. She said that negotiations were outstanding on what could be held in the portfolio, and on the fee. L & G had wanted reassurances that the product sold was what the Council wanted, and P-Solve were expecting implementation to take place in mid-November. The Chairman requested that P-Solve agree an implementation strategy with L & G

Eugenie White asked whether the figures given reflected LIBOR’s recent divergence from the base rate. Helen Smith confirmed that it did, albeit that the difference had become more pronounced in the then current quarter

With regards to Majedie, she said that the fund had, when measured against the benchmark, underperformed during the stock market rallies of 2009 and 2010. However, a large proportion of the holdings with Majedie were defensive in nature, especially those in its Tortoise Fund. As such, P-Solve would, given the market conditions, recommend Majedie’s retention. In response to a query from Councillor Ginn, Pat Gough agreed to recirculate the information given on the number of stocks held by Majedie.

Eugenie White asked about the Majedie fee structure, given the general fall in the market rate. Pat Gough, Assistant Director, Business Support, said that she had asked P-Finance to investigate fee structures, and had been told that the basic fees were normal, though performance fees were high. She said that she had asked for more detail on the types of arrangements.

Councillor Murphy asked if monies could be moved between mandates without recourse to a tender process. Officers said that it could.

In response to a question regarding the asset class breakdown, Helen Smith said that she would check whether and how the emerging market equities mandate held by MFS was reflected in the figures.

Councillor Botterill asked whether there was an up-to-date estimate on the value of the fund. Pat Gough said that the custodian had given a figure of £572 million on the day preceding the meeting.

Councillor Murphy asked about the Fund’s holdings in commodities, and whether this was contained within the “other” category. Helen Smith said that the fund’s exposure to commodities came through direct exposure, with gold held directly by the dynamic asset allocation mandates, and through indirect exposure to exchange-traded-funds and mining and similar stocks. She noted that, where exposure was through equities, the value of those equities was split

Councillor Iggulden noted that mining stocks often entailed greater exposure to commodities prices in general, than the gold price in particular, and the Chairman said that the percentage of the fund held directly in gold appeared to be lower than anticipated.

Pat Gough gave the percentage of gold and gold exchange traded funds held by Barings and Ruffer (11 and 7 respectively). Helen Smith said she would check what the figure was for the whole fund and respond to the Committee.

With regards to the performance of the fund during the third quarter, Helen Smith said that Majedie and MFS had performed relatively well given the turbulent market conditions for equities, and that Barings and Ruffer had also performed well.

RESOLVED THAT

The report be noted.