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 31^st December 2012. It is attached as Appendix 1.

John Conroy, P-Solve, introduced the report, which set out the fund's performance in the quarter to 30 September 2012. He said that, due to the rescheduling of the meeting scheduled for December, the Committee had been briefed on performance for the period. He said that January had seen a continuation of the broadly positive market sentiment of the previous period, which he characterised as tempered confidence. He said that the 1 year return showed the fund repairing some of the losses caused in earlier periods, linked to the extraordinary performance of gilts.

He said that the fund's managers had performed well, and noted that Majedie had outperformed the market by 4.5%. He said that the managers who held dynamic asset allocation mandates had not performed as well, but this was reflective of their mandate. He said that both Barings and Ruffer had moved towards greater levels of equity holding, but remained understandably cautious about the fundamentals behind improved market sentiment. Their performance in 2012 had been further affected by a fall in the value of gold, but Mr Conroy said that P-Solve believed that the employment of the dynamic asset allocation mandates remained the correct strategy, given that doubts remained about the long term viability of a bull market.

He added that the matching fund managers had performed in line with expectation.  

Eugene White observed that Ruffer and Barings had been appointed at a time when LIBOR had been at 4%, and the mandate had been designed to match the actuary's assessment of the liabilities. The collapse in LIBOR meant that the performance achieved would not be enough to meet actuarial expectations. She added that she was concerned that both managers appeared to be late to capture the rise in equities.

She also asked about the net cash outflow from the fund; she asked why the funds had been withdrawn from the equity section of the fund. Jane West, Executive Director of Finance and Corporate Governance, confirmed that net outflows of cash were now likely. Mr Conroy said that the funds had been withdrawn from equities as that element of the fund had been over target.

With regards to the issue of the benchmark for Barings and Ruffer, Mr Conroy said that the DAA mandates had been designed to allow the fund greater manoeuvrability. He said that their performance should be seen in the light of large negative returns for equities, and a difficult investment climate in other sectors. He said that while he accepted the concerns about whether the managers had moved with sufficient dynamism, this should be set against the continuing disparity between positive sentiment and negative sentiment.

With regards to the demands set by the actuary, he said that no investment strategy could have delivered the required return, given market conditions. He said that the strategy to diversify had been the correct one.

The Chairman noted that the volatility of previous years, with heavy negative returns in a single given month, would see the 3 and 2 year returns substantially improved as they were removed from the three year rolling programme. Mr Conroy confirmed that this was the case, and the next monthly return should show, presuming no downward shift in market sentiment, a further improvement in fund manager performance.

Councillor Murphy asked whether the benchmark for the DAA managers was sufficiently challenging. Mr Conroy said that it had been challenging, noting that capital protection was part of their role. Councillor Murphy asked if he believed they had been over-exposed to gold. Mr Conroy said that the reason for initiating DAA mandates was to ensure the fund could move flexibly. He said that he believed that the two managers had the liquidity and infrastructure to move quickly, and that they did not aim to hit the top or bottom of markets given the capital protection element of their role. He said that P Solve assessed them on the percentage of good and bad decisions that they had made, and believed that, on that measure, both managers had performed well.

The committee requested a report on the performance of the private equity mandates.

RESOLVED THAT

(i) The report be noted.

(ii) That officers be requested to report to the next meeting on the performance of the private equity mandates.