Agenda item

62.1.     The Board considered a report providing the 2020/21 Quarter 3 budget report and the business plan and budget for 2021/22.

62.2.     Stephen Osborn (SO) asked for confirmation why the in-house Pension Administration Team (PAT) would cost the Fund £625k more per year in 2021/22 than the Orbis PAT cost.

62.3.     SK explained that bringing the service in house would invariably cost more, as it would involve paying the Heywoods Aquila (pension administration software) license upfront and the PAT would no longer benefit from economies of scale. The advantage, however, would be that the East Sussex Pension Fund (ESPF or the Fund) would have more control over the PAT and there would be greater transparency of costs. She explained that at the moment the Orbis PAT costs are best guess, it is difficult to estimate accurately what they will charge for the 2020/21 year. This difficulty in calculating the PAT cost also meant that the outturn figure may be different to the current forecast and the difference in cost of the in-house service may therefore be less than £625k. SK said this will be confirmed at the next meeting.

62.4.     SO asked whether there is any indication that fees from investment managers have decreased since the assets were moved to the ACCESS Pooled Fund.

62.5.     Russell Wood (RW), Pensions Manager: Investment and Accounting, said the actual management fees for 2019/20 were about £15m and the majority were taken from source by investment managers, some of which were from the assets invested in ACCESS. Whilst the Fund’s absolute return managers have transferred to ACCESS over the past year, it is difficult to make comparative value for money estimations on whether ACCESS has reduced their fees from the outturn report. This is because the asset value of the Fund increased significantly over the past year, meaning the fee taken by investment managers will have gone up too. The Fund is working on getting greater transparency around the investment fees taken within the  ACCESS pool and plans to report this to the Pension Board and Committee in due course, but it is understood that pooling assets has driven down costs.

62.6.     The Chair agreed it would be helpful to see a schedule of what fees are paid directly to managers and what are extracted from source.

62.7.     Councillor Tom Druitt (TD) asked whether the variance between the forecast and outturn investment management fee for 2020/21 was an issue and asked whether the higher than expected costs would be incorporated into the forecast budget for 2021/22. 

62.8.     SK explained that the outturn was higher than the forecast investment manager fee during 2020/21 because of the change in the investment strategy made in June 2020, which involved the disinvestment from UBS passive equity fund into the four new impact investment and smart BETA funds. These new fund managers are paid direct whereas UBS was taking its fee from the funds. This decision was made during the  year, which is why the outturn is higher than forecast costs. The 2021/22 budget takes account of the increase in direct management fees and is expected to be a more accurate reflection. The Chair added that it is difficult to know the most efficient charging structure until a fund manager is appointed.

62.9.     The Chair asked who the Fund’s custodian is and what the length of contract with them was, as holding assets via a pooled structure might not be as complex as holding them directly. This could mean there may be value in reviewing the custodian arrangements. 

62.10.  SK confirmed that it was Northern Trust and that it was a standard not a fixed term contract. Cllr Gerard Fox (GF), the Chair of the Pension Committee, said he understood the Pensions Team now has the capacity to undertake a piece of work to look at whether the Fund is receiving best value from its custodian.

62.11.  The Chair asked how the Pensions Team recruitment was progressing.

62.12.  SK said it was progressing well and a new Compliance and Governance Manager had joined that day, with a training officer due to be appointed within their team.  RW is also interviewing for an investment analyst and an accountant.

62.13.  The Chair asked whether the 2021/22 budget of £7.025m was likely to be the regular budget amount or whether it would increase more.

62.14.  SK said it was a realistic base but there may be a few additional costs, for example, further resources required to implement the recommendations of the Communications Review and consultancy work resulting from the McCloud Judgement.

62.15.  The Board RESOLVED to note the report.