Issue - meetings

4.1       Officers noted that Item 9: Pensions Administration System – Business Case was listed on the Pension Committee agenda as to follow. This report, which includes commercially confidential material, will be circulated amongst Pension Board members in advance of the 08 February Pension Committee meeting.

4.2       With reference to Item 6: Fund Performance Schroder (Property), DZ asked why Schroder’s performance target is set so low above the benchmark. DZ also queried Schroder’s own estimate of its performance to date this year as showing “strong absolute returns” when returns appear to be much lower than in previous years, and when Schroders has actually underperformed against its benchmark over the past three months.  It was agreed to bring this to the attention of the Pension Committee.

4.3       Members discussed Item 10: LGPS Investment Pooling. The Chair noted that the emerging landscape of pooled funds is now looking quite coherent. The main issue for East Sussex will be to identify the pooling option that gives us the strongest voice. Hence governance arrangements will be a key factor. OO agreed that having the opportunity to influence the development of the pool will be key, and a significant issue in making the decision to join a pool is whether governance arrangements have or have not already been determined. With the exception of the Welsh pool it is unlikely that the Government will permit any pool with less than £25 billion invested to proceed, so we need to be sure that the pool we join can exceed this floor.

4.4       In response to a question from DZ about the likely scale of savings from pooling, OO told members that officers were working on this and should have some estimates by summer 2016. MK cautioned members not to expect too much here: even if pooling will eventually produce savings, these are likely to be in the long term (10 years plus). This is because the investments most readily pooled (e.g. passive) already have low management fees, so there will be little opportunity to make savings. High fee investment vehicles will take much longer to pool and there is no certainty that fund managers for whom the LGPS is not a particularly significant client will acquiesce to demands for their fees to be lowered for larger scale LGPS investments. Some types of investment (e.g. private equity, property) will take time to pool because of the illiquidity of the assets involved.

4.5       BR and AE queried whether there were risks involved in pooling with pension funds that are relatively under-funded. MK noted that the plan is to pool investments to realise economies of scale, but not to merge funds, so individual funds will retain their own risks. Neither is there an obvious link between a fund’s deficit and the competence of its management: relative underfunding is likely to be a consequence of investment decisions taken many years ago (such as taking a ‘holiday’ from employer contributions in the 1980s) rather than recent actions. Of much greater  ...  view the full minutes text for item 4

·        Note of Strategy Day Review on 29 September Pension Committee (including the Committee approval of fund manager mandate reallocation)

·        Agenda for 24 November Pension Committee

4.1       This item was introduced by Ola Owalabi (OO).

4.2       Strategy Day OO told the Board that the Pension Committee (PC) had held a successful Strategy Day in September. PC members received a number of presentations, discussed the Fund’s investment strategy, and agreed the termination of the Fund’s contract with Lazard and the re-allocation of the relevant holdings to other investment managers.

4.3       In response to a query from David Zwirek (DZ) as to why the funds managed by Lazard had not been transferred to Longview, given Longview’s recent exceptional performance, OO told members that the PC had opted to move to funds with a lower risk profile than Longview, which is a very ‘active’ and hence relatively high risk investor. MK added that there were additional risks associated with over-investing in the current market leader, as markets operate in cycles and very high performance is rarely sustained over time.

4.4       Members discussed the policy of having a ‘trigger point’ which would require de-risking investments to be made should the Fund hit a pre-determined funding level (e.g. 85%). MK noted that the East Sussex Pension Scheme hit its trigger point last year and some de-risking was successfully undertaken.

4.5       Members discussed the decision to terminate the contract with Lazard, with BR commenting that the process seemed to have taken a very long time. OO told the Board that, although Lazard had been on ‘watch’ for a considerable period, it had only relatively recently been placed in the ‘replace’ category, and action to terminate following this re-classification had been relatively swift. The Chair remarked that replacing an investment manager was not a decision that should be taken lightly as there would always be considerable costs involved.

4.6       Fossil Fuels Cllr Kevin Allen (KA) informed members that a Notice of Motion proposing fossil fuel disinvestment had recently been debated at a Full Council meeting of Brighton & Hove City Council. The Notice of Motion was not passed, but the subject will clearly remain topical. DZ agreed, noting that there had been a good deal of local media focus on the issue in recent months. Angie Embury (AE) concurred, saying that this was an issue that some of her members have expressed concerns about, particularly in terms of investment in firms involved in fracking. MK told the Board that the Local Authority Pension Forum is very active in ethical and socially responsible investment, lobbying firms to act responsibly. RH added that one of the major difficulties in ethical investment lay in identifying major international firms that consistently and universally act in ethical ways.

4.7       Fund Performance MK told members that Schroders are now on ‘watch’, but this is due to recent changes in senior management not to the fund’s performance.

4.8       Re-procurement of Investment Consultancy and Actuarial Services MK informed members that the council had tendered for this contract and had received a pleasing number of expressions of interests. The new contract will commence in January 16 which should give just enough time for  ...  view the full minutes text for item 4

4.1       MK explained that the planned PC strategy session was an annual deep-dive focusing on investment performance over the past year. The session also presented a training opportunity in terms of what makes an effective pension fund, with expert independent input. In general, performance over the past 12 months has been good, but PC members will still need to decide whether the fund needs to change its strategy. This may involve opting to receive additional training in order to better understanding some investment options (e.g. property) before making decisions on the strategy. The PC may also take the opportunity to exit agreements with specific Investment managers.

4.2       The Chair noted that he was encouraged by recent fund performance, and by the percentage of the Pension Fund that was actually funded. He also found it refreshing that so much of the debate around the East Sussex fund was conducted in public, including the PC strategy session, which PB members could attend should they wish. This openness is in contrast to the way in which many other Local Government schemes are managed.

4.3       Sue McHugh (SM) asked how the ultimate aims of the fund are agreed. MK told members that this is via the strategy. The degree to which the strategy needs to be altered will depend on the fund’s performance. Given the recent good performance, there may be relatively little need to make major changes, although decisions may well need to be made around crystallising recent gains. Employers are consulted on strategic issues via the annual Employers’ Forum, but there is also a key role to be played by employer representatives on the PB.

4.4       SM questioned whether PB, and hence employer representatives sitting as PB members, would have an input into any plans to vary the strategy. MK noted that PC was the decision-making body in terms of the strategy, although she was not anticipating any fundamental changes being made. However, MK recognised that it was important to engage with employers. In the future these may include offering the opportunity for employers within the scheme to adopt differing investment strategies. The Cheshire LGPS is currently exploring this idea, although it would inevitably lead to increased Investment fees.

4.5       SM noted that she did not think it was the case that employer objectives were out of line with the fund strategy, but it would be helpful to have a more explicit understanding of how the fund calculated and managed risk both in the short and longer term. DZ echoed this.

4.6       The Chair added that there was a significant employer interest in the triennial actuarial evaluation also. This was particularly so because an individual employer’s pension deficit might be very different from the liability profile of the entire fund, meaning that their preferred investment strategy might be at odds with that of the best strategy for the fund as a whole.

4.7       Angie Embury (AE) asked whether PC members were trained to make these key strategic decisions. MK told the Board  ...  view the full minutes text for item 4