Agenda and minutes

Pensions Committee - Friday 20th June 2014 10:00am

Venue: White Room, County Buildings, Stafford. View directions

Contact: Julie Plant  Email: julie.plant@staffordshire.gov.uk

Items
No. Item

1.

Declarations of Interest

Minutes:

Mr Dudson placed on record his membership of the UNITE and GMB Trades Unions’ Pensions Committee.

Mrs Shelagh McKiernan placed on record her deferred membership of the Unilever Pension Fund.

 

2.

Appointment of Pensions Panel 2014/15

To consider the appointment of the following members to serve on the Pensions Panel for the 2014/15 municipal year:

 

PEB Atkins, D Davis OBE, R Marshall, S McKiernan, S Sweeney.

 

Minutes:

RESOLVED- That the following members be appointed to serve on the  Pensions Panel for the 2014/15 municipal year:

 

PEB Atkins, D Davis OBE, R Marshall, S McKiernan and S Sweeney

 

3.

Minutes of the meeting held on 21 March 2014 pdf icon PDF 58 KB

Minutes:

RESOLVED- That the minutes of the meeting held on 21 March 2014 be confirmed and signed by the Chairman.

 

4.

Minutes of the Meeting of the Pensions Panel held on 20 May 2014 pdf icon PDF 53 KB

Minutes:

RESOLVED – That the minutes of the Pensions Panel of 20 May 2014 be noted.

 

5.

Consultation Paper on Opportunities for Collaboration, Cost Saving and Efficiencies pdf icon PDF 118 KB

Report of the Director of Finance and Resources

Additional documents:

Minutes:

The Government’s initial “Call for evidence on the future structure of the Local Government Pensions Scheme” ran from 21 June to 27 September 2013. A key theme had been based on a proposal to merge schemes, to form larger funds which in turn, with economies of scale, could save investment management costs. The Government had then commissioned additional analysis of the evidence received to consider the feasibility of:

 

·        Establishing one common investment vehicle for all funds

·        Creating 5 to 10 common investment vehicles for fund assets, and

·        Merging the existing structure into 5 to 10 funds

 

Subsequently a second consultation had been issued which set out proposals for reforms to the LGPS and opportunities to deliver claimed headline savings of £660m per annum for local taxpayers. Responses were due by 11 July with respondents invited to submit any feasible proposals for the reduction of fund deficits.

 

The consultation included the following proposals:

 

·        Establishing Common Investment Vehicles (CIV) to provide funds with a mechanism to access economies of scale. Helping them to invest more efficiently in listed and alternative assets and to reduce investment costs.

·        Significantly reducing investment fees and other costs of investment by using passive management for listed assets, since the aggregate fund performance had been shown to replicate the market.

·        Keeping asset allocation with the local fund authorities, and making available more transparent and comparable data to help identify the true cost of investment and drive further efficiencies in the Scheme.

·        A proposal not to pursue fund mergers at this time.

 

The current abandonment of the scheme merger proposals in favour of CIVs was welcomed as mergers would have undermined local accountability and could have been costly and time consuming to implement.

 

CIVs, or Collective Investment Funds (CIFs) gave potential advantages in reducing investment management fees, based on investment pricing model whereby investment managers offered a lower fee for higher amounts invested. Members received details of typical fee structures and the possible reduced fee benefits of a CIV. CIVs had much less relevance for larger funds as the potential saving was much smaller.

 

The main proposal was to move from active to passive investment management. However, Members heard that the evidence that this would not harm overall scheme performance was overly simplistic and at worst misleading. Staffordshire had its own evidence over the past four year period showing that well structured active management could add net benefits to the Fund after all costs had been accounted for.

 

Members considered the possible benefits of CIVs for Staffordshire. There could be some benefit to creating CIVs but there seemed to be little cost benefits from CIVs that covered passive equity management. Some cost advantages may be gained from active equities, although the Fund would have to give up some of it’s accountability for appointing managers. A balance could be considered between how much local accountability was lost versus the size and scale of the CIVs. Smaller regional CIVs may provide a suitable balance and Members felt it appropriate for  consideration  ...  view the full minutes text for item 5.

6.

Pension Fund Investment - Performance 2013/14

Presentation by Portfolio Evaluation

 

Minutes:

The Committee received a presentation from Mr Nick Kent, Portfolio Evaluation Ltd, on the Staffordshire Pension Fund investment performance for 2013/14.

 

 The Fund had achieved a return on its investments of 8.2% over the year, outperforming its benchmark return, of 6.2%, by 2.0%. Equities, in which the Fund is predominantly invested, had another positive year, with performance  buoyed as a result of expected economic growth and central bank intervention.

Members received details of the market results for quarter ended 31 March 2014. This showed the markets appearing to enter their next phase, with no expectation for such a strong year as had been seen in 2013/14.

Members also received details of market results for the three years ending March 2014.  The Fund achieved an average return of 8.8% per annum. There had been positive investment returns from all global equity markets with the exception of Emerging Markets and most asset classes showed positive returns too; the only exception being commodities.

 

There was a general consensus that bond yields would increase and normal yield curves would reassert themselves. The timeline for this was unsure, particularly with central banks continuing to influence short end yields. The long term trend for yields to increase would result in any fixed term investments showing negative returns. Many investors were therefore moving to credit and were employing low duration strategies in order that they would suffer less impact from increases in interest rates. Corporate debt had performed strongly until recently as investors had sought yield.

 

An analysis of an average Pension Fund’s risk and return profile revealed that many returns were in line with actuarial expected returns. Although risk had reduced by about 20% for most pension funds due to reduced market volatility.

 

Client trends showed:

i)              a focus on diversification;

ii)            growth in investments within Alternative Asset Classes continuing ,although there were ongoing concerns about disappointing results and a lack of transparency. 

iii)           an increase in core equity mandates;

iv)           Smaller funds continuing to investin Diversified Growth Funds; and

v)            Government and high yield bond exposures decreasing.

 

Members received details of the Staffordshire Pension Fund’s longer term results for 1, 3, and 5 year periods ending 31 March 2014. There had been positive real returns generated by the Fund over all time periods. Significant improvement in medium term relative returns continued, with long term returns in excess of inflation. The Fund’s one year and three year performance was in excess of its benchmark, with the majority of contributing portfolios also having outperformed their individual benchmarks. Of note, were consistently high returns and significant outperformance generated by the Longview global equity portfolio and the Fund’s Property portfolio had also made a significant contribution over time. The Fund’s five year return also exceeded the benchmark. Two relatively new investments in Diversified Alternative Funds, with Morgan Stanley and Schroders, had yet to have an impact, however this was not unexpected given the recent performance of equity markets.

 

 

When considering the total fund risk, it was noted that at  ...  view the full minutes text for item 6.

7.

New Administration Policies 2014 pdf icon PDF 57 KB

Report of the Director of Finance and Resources.

Additional documents:

Minutes:

The Local Government Pensions Scheme (LGPS) Regulations contained a number of areas of discretion for both the Scheme Employers and the Administering Authority. A review of the policy document in respect of the Administering Authority’s policies had taken place following the introduction of the new LGPS on 1 April 2014. Each Scheme Employer had to produce and publish their own policy document on their own areas of discretion by 30 June 2014 and send a copy to the Administering Authority.

 

Members received a copy of the amended Local Government Pension Scheme  Discretionary Powers for Staffordshire County Council. There were no new discretions of any significance introduced into the LGPS 2014 with regard to the Administering Authority’s policies and only minor amendments had been made to the wording and regulation numbering.

 

Members noted that two important regulations were briefly described in the new document: Regulation 55 (Governance Compliance Statement) and Regulation 58 (Funding Strategy Statement).  The Fund’s policy for these regulations was contained in separate documents which the Committee reviewed.

 

Payment of a death grant was covered within this document. Whilst this policy was further covered under the Council’s scheme of delegation, where cases would not fall precisely within the policy the Committee needed to be aware that the Administering Authority through the Pensions Committee had the absolute discretion as to the recipient of the death grant.

 

RESOLVED – That: a) the revised Administering Authority’s Policy document following the introduction of the 2014 Local Government Pension Scheme be approved; and

b) where the Regulations remain unchanged that the retention of the existing policy be noted.

 

8.

Exclusion of the Public

The Chairman to move:

 

‘That the public be excluded from the meeting for the following items of business which involve the likely disclosure of exempt information as defined in the paragraph of Part 1 of schedule 12A of the Local Government Act 1972 indicated below’

Minutes:

RESOLVED - That the public be excluded from the meeting for the following items of business which involve the likely disclosure of exempt information as defined in the paragraph of Part 1 of schedule 12A of the Local Government Act 1972 indicated below.

 

9.

Exempt minutes of the meeting held on 21 March 2014 (exemption paragraph 3)

10.

Exempt Minutes of the Pensions Panel meeting held on 20 May 2014 (exemption paragraph 3)

Minutes:

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11.

Investment Manager Fees (exemption paragraph 3)

Report of the Director of Finance and Resources