Report & Accounts 2015 Administered by GREATER MANCHESTER PENSION FUND 2 Contents Chair’s Introduction 4 Management structure 6 Top 20 equity holdings 9 Investment report 10 Myners principles 21 Financial performance report 22 Statement of accounts 25 Actuarial statement 62 Scheme administration 64 Employer contributions 70 The LGPS at a glance 86 Policy Statements 87 - Funding Strategy 88 - Governance Policy 105 - Governance Compliance Statement 108 - Core Belief Statement 113 - Statement of Investment Principles 115 - Communications Policy 122 - Pension Administration Strategy 126 Useful contacts 133 3 Chair’s introduction GMPF has had a successful last 12 months; it has: Funding issues l achieved an investment return of 11.7%; GMPF remains amongst the best funded of LGPS funds l maintained a funding level amongst the best funded of with relatively low employer contributions. LGPS funds which means employer contribution rates On a like for like basis, GMPF was the third best funded are, on average, at the lower end of the range; LGPS scheme out of the 89 funds in England and Wales at l taken on the membership data and assets arising from the 2013 actuarial valuation. GMPF becoming the one administering authority for The consequence of the changes in membership is to probation staff. This increased the membership of increase potential volatility of cost and affordability to the GMPF by around 46,000 and increased assets by employer. Key to long term success in managing volatility £3 billion following the regulatory changes that took and affordability will be ensuring that GMPF is ready to effect from 1 June 2014; take advantage of the opportunities that arise to reduce l experienced an increase in fund membership to over investment risk at an affordable cost to employers. 340,000 members and assets have increased by £4.3 billion to £17.6 billion. Investment performance & management However, the challenges of running a pension fund in the arrangements current environment continue and are driven by 3 main A solid year with returns of 11.7%. factors: The Fund’s return of 11.7% was below the local authority l the impact of austerity measures and Government average of 13.2%. policies on employees and employers. This has resulted This was disappointing relative performance for the year in workforces shrinking, the number of employers but GMPF has an excellent long term track record and this increasing and a potential weakening of the covenant is detailed in the performance section. It is this long term strength of some of the GMPF’s employers. This results strong performance that has underpinned the funding in the aggregate maturity of the liabilities increasing level. The impact of investment returns on contributions is and the mix of liability profiles covering a very wide growing as illustrated by the increasing influence of returns range; as GMPF matures. A 1% investment return now equating l the impact of monetary policy with the base rate to 8% of contributing employer’s payroll and this ratio is remaining at 0.5% for a sixth year together with the expected to increase in the future. impact of quantitative easing (QE), that has resulted in GMPF has strengthened its investment management exceptionally low long term interest rates and negative arrangements this year with the aims of improving nominal rates in some Government bond markets. This performance and broadening the options for the future resulted in a higher value being placed on the value of with the appointment of LaSalle as our property manager, pension promises earned that is only partially offset by taking over from the in-house team, and Investec investment returns over the last 5 years; appointed to a global equity mandate. l the excellent investment returns of recent years for most asset classes has been driven by the very low The appointment of a debt manger in the next financial prospective returns from bonds. Looking forward, I am year will complete our revised arrangements. We believe expecting it to be a relatively low return environment in in maintaining simple arrangements whilst recognising the medium term. the need to be able to respond to the growing complexity. Thus from my perspective, the structural changes in membership and employers and the impact on maturity An important task for 2015 will be integrating Probation profiles is adding to complexity, and this complexity will assets into the Main Fund investment management continue to grow because of austerity measures and arrangements. Government policies. The management of the short and long term needs of employers and scheme members Membership Changes with an appropriate level of prudence in managing and The recent announcements by the Chancellor and the recovering deficits is the biggest challenge that we face. expectation of a further reduction in local authority spending in the Autumn Statement makes this an The Panel and I continue to focus on factors that will exceptionally testing period for employers and help deliver our long term aim, “to provide secure employees. Most GMPF employers will continue to pensions effectively and efficiently administered at an reduce their workforce and further pay restraint is affordable and stable cost to employers”. We recognise the expected for the next 4 years. The reduction in employee importance of investment strategy, its implementation members will in part be offset by “auto-enrolment.” and managing costs will be critical. As will effective service delivery and low unit costs for administration Last year we welcomed 67 new employers to GMPF which responsibilities. means we now have 431 contributing employers. Much of this increase relates to employers created out of transfers from existing employers, such as new academy schools. 4 Regulation and Legislative Change Local Investment 2014 Scheme up and running and further wide ranging We continue to progress local investment opportunities changes being considered. with the twin aims of commercial returns and supporting the area. In an ideal world, we need stability in the LGPS to encourage and support pension saving. The big challenge Some examples include our flagship office development to stability will be affordability, especially if investment at 1 St Peter’s Square, Manchester, which is now returns do not help reduce deficits across LGPS funds. completed and being let to long term occupiers in professional services. Our joint venture with Manchester The introduction of the 2014 career averaging new City Council will see the conclusion of the build LGPS had its teething problems from an administrative programme for 240 homes in Manchester this year and we perspective. The late conclusion of the regulatory process are a partner in the Airport City development, a long term and the knock on impact of more manual calculations investment programme targeting £800m of investment had an impact on meeting our performance standards to over 15 years. All these investments are expected to scheme members. We continue to work with employers to deliver good returns for GMPF and have economic and/or improve the service provided. regenerative benefits for the North West. In February, we established a Local Board to help in the management of GMPF as required by Government. The New home Local Board has oversight of compliance responsibilities We move into a new office in Droylsden in September and helps deliver effective and efficient governance of which will enable all staff to be located in the same the Scheme. Representation now comprises 5 employer building and this will support our ongoing desire to and employee representatives to provide broad coverage improve effectiveness and efficiency. of employer and member interests and its effective operation. Conclusion This is an exceptional time to be managing a pension The Pension Regulator issued a Code of Practice focussing fund. The issues I have commented on together with on the governance and administration of public service a continued expectation of improving life expectancy pension schemes and it has also published a document flag the complexity and challenge of offering a good, setting out its Compliance and Enforcement Policy. The affordable pension scheme to employees and employers. Management Panel, its Working Groups and the Board will be working to ensure GMPF compliance and we are We have long recognised the need to keep members looking to build on our existing training programme for informed and work closely with employers and be able members of the Board and Panel to support this activity. to respond to the changes that the future brings. We also need to balance the short and long term needs of The last Government gave consideration through a “Call employers in a prudent way from a Fund perspective. for Evidence” for structural changes to the LGPS. This process was not concluded but the new Government is GMPF has a long term successful track record reflected continuing to consider how LGPS assets can be invested in its funding level and reputation. Our track record to deliver savings in investment management costs and and innovation is reflected in its recognition at national improve net returns. As part of the 2015 Summer Budget awards, such as Large Scheme of the Year, 2014 (LGC). there was an announcement on legislation for delivering The Panel and I will continue to take decisions from a long savings through the use of pooled investment vehicles term perspective to help maintain our success. for fund assets. As part of this process, we will submit a I thank the members of the Panel, the Advisors, constructive response building on the strengths of the Investment Managers and not least our staff for their work LGPS and GMPF and focussing on the key requirements over what has been an exceptional last 12 months. for effective governance of pension funds. We have been working hard at developing collaborative working, an illustration of which is our Joint Venture with the London Pensions Fund Authority targeting infrastructure investment.