Agenda item

5b        Officers’ Report: General Update

5b.1     Cash Flow. OO told members that the forecast cash flow for this financial year is currently very close to target.

5b.2     National Update. OO told members that there had been much discussion around pooled investments, with East Sussex playing an active role in national debates as well as talking with SE7 partners. The Government is expected to launch a new consultation in the near future, with schemes being asked to comment on proposals that will require them to show how they are reducing costs and working effectively with other schemes. There is the possibility that the Government will go beyond this and insist on formal pooling of schemes. This would potentially be accompanied by ‘backstop legislation’ obliging schemes which do not come forward with their own proposals to pool in any case. Therefore, even if schemes are not enthusiastic about pooling, they need to be active in exploring its potential or else risk being obliged to adopt a standard pooling arrangement.

5b.3     DZ noted that this seemed to run counter to moves to ‘individualise’ scheme strategies – e.g. offering bespoke strategies to each employer. MK commented that the focus was likely to be more on encouraging joint procurement of investments in particular asset classes as a way of reducing Investment Manager fees across the whole LGPS.

5b.4     The Chair added that London Boroughs have already formed a common investment vehicle. However this does risk reducing future flexibility.

5b.5     DZ commented that moving to a ‘mega’ LGPS fund would surely risk distorting the market. MK agreed, suggesting this may be why the Government has moved away from proposing a single Local Government fund in recent months. The Chair noted that, if funds were pooled, then it would be important to spread investment risk by using common investment vehicles; it is important that we recall the lessons learnt from the collapse of BCCI and the consequent exposure of some local authorities who had over-invested in a single product.

5b.6     TW asked whether fees could be reduced by doing more work in-house? MK responded by saying that it was possible to run passive investment in-house, but doing so would be likely to cost more than using an external provider. This might be different for pooled funds, but it was important to recognise that pooling arrangements were complex and took time to negotiate – for example, the London arrangements had taken four years to agree. There is little or no scope to manage active investments in-house. Whilst pooled funds might enable schemes to lever savings in active investment costs, this would probably only be delivered by a significant scaling up – e.g. a single national fund for absolute return investments.

5b.7     Exit Payment Cap. OO also explained that the Government was currently consulting on an exit payment cap, limiting total payments to public sector employees leaving a post. MK commented that, although ostensibly designed to limit payments to very senior officers, the proposed £95K cap could also hit long-serving mid-managers.

5b.8     TW commented that the cap would make it more difficult for organisations to get rid of poorly performing managers. The Chair agreed, pointing out that it would be particularly difficult to dispense with Chief Executives in the future should organisations be effectively barred from offering an attractive exit-package.

5b.9     MK told members that an ESCC response to this consultation would be agreed by Governance committee. Unfortunately there has been a very short window to respond to this consultation, and many local authorities have not responded at all.