Lancashire County Pension Fund Annual Report 2015/16 comms:4801 www.lancashire.gov.uk 2 Lancashire County Pension Fund Annual Report 2015 / 2016 Contents Section Description Page A Management Structure 4 B Foreword by County Councillor Kevin Ellard, Chair of the Pension Fund Committee 6 C Governance of the Fund 8 D Administration of the Fund 12 E Knowledge and Skills Framework 18 F Investment Policy and Performance 22 G Accounts of the Fund 40 H Lancashire Local Pension Board Annual Report – 2015/16 106 I Actuarial Valuation 110 J Contacts 127 K Glossary 128 Appendices 5. Funding strategy statement (FSS) 1. Governance policy statement 6. Statement of investment principles (SIP) 2. Administration report 7. Actuarial valuation 3. Communication policy statement 8. List of member organisations at 31 March 2016 4. Pensions administration strategy statement Friargate student accommodation – Preston 4 Lancashire County Pension Fund Annual Report 2015 / 2016 A. Management structure Administering Authority Co-opted Blackpool Council Head of Pension Fund Lancashire County Council representative Abigail Leech M Smith Lancashire County Council Pension Director of Financial Resources Fund Committee Co-opted Lancashire Leaders’ Group N Kissock CPFA M Barron representative L Beavers P Rankin Actuary D Borrow E Pope Mercer G Dowding K Ellard (Chair) Co-opted Trade Union representative Auditor J Oakes P Crewe Grant Thornton M Otter J Tattersall M Parkinson (Deputy Chair) Property Solicitors C Pritchard Co-opted HE/FE sector representative Pinsent Masons A Schofield A Milloy DWF K Sedgewick D Westley Custodian Independent Property Valuer D Whipp Northern Trust Cushman & Wakefield B Yates Independent Investment Advisors Corporate Governance Advisor Co-opted Blackburn with Darwen E Lambert PIRC Borough Council representative A Devitt R Whittle Performance Measurement Director of Lancashire County Northern Trust Pension Fund (to 31/3/16) G Graham Lancashire County Pension Fund Annual Report 2015 / 2016 5 AVC Providers Fund Managers Knight Frank Investors Prudential AGF Investments Kreos Capital Equitable Life Arclight Capital Partners Madrileña Red de Gas Ares Management M&G Investments Babson Capital Management MFG Investments Legal Advisors (other than property) Baillie Gifford MFS Investment Management In-House Bluebay Asset Management Monarch Alternative Capital MacFarlanes Morgan Stanley Investment Management Eversheds Capital Dynamics Muzinich & Co Clifford Chance Christofferson, Robb & Company Allen and Overy EQT Natixis Global Asset Management Taylor Wessing Neuberger Berman Guild Investments Ltd Addleshaw Goddard Gatefold Hayes LP Pacific Investment Management Company Global Infrastructure Partners Permira Debt Managers Tax Advisors Pictet Asset Management KPMG Hayfin Capital Management Prima Capital Advisors Heylo Housing Trust Bankers Highbridge Capital Management Robeco Asset Management National Westminster Highstar Capital SL Capital Partners LLP HSBC Global Asset Management Stonepeak Infrastructure Partners I Squared Capital THL Credit Icon Investments Investec Asset Management Venn Partners Kames Capital Westmill Solar Co-operative King Street Capital Management White Oak Global Advisors 6 Lancashire County Pension Fund Annual Report 2015 / 2016 B. Foreword by County Councillor Kevin Ellard, Chair of the Pension Fund Committee As ever it has been a very busy year for arrangement with some of the key staff according to independent experts State Lancashire County Pension Fund. The within the Fund including George Graham Street the best in the Local Government world in which we operate does not stand the Director of the Fund and Mike Jensen Pension Scheme. We also completed two still, and consequently neither can we. the Chief Investment Officer. Both these major infrastructure investments during individuals have played a key part within the year, one acquiring 50% of EDF’s Over the last 12 months the Fund has the Fund and will continue to do so in the Portuguese wind energy business and the concluded the first pooling arrangement partnership arrangements. other acquiring 12.5% of the Madrid Gas within the Local Government Pension Distribution Network where we are partners Scheme in the Local Pensions Partnership. While the creation of the partnership with with EDF, PGGM one of the largest Dutch However, our approach to pooling the London Pension Fund Authority has pension funds and a Chinese sovereign has always been about the holistic been the largest single issue facing the wealth fund. These assets increase the management of the Fund rather than Fund in the last 12 months we have also Fund’s infrastructure investment to 9.4% just creating a bigger pot of investment made sure that we have kept a clear focus of the Fund and provide a long term stable assets and shortly after the end of the on the business of investing the Fund and income generating investment ideally financial year all the staff who carry out the ensuring that pensions are paid accurately suited to help the Fund meet its liabilities investment and administration functions of and on time. going forward. The success of this strategy the fund transferred to the new Partnership. has again been recognised with a number They continue to be based in Preston and In terms of investment the markets have of awards which are detailed elsewhere in continue to focus on making sure that seen a topsy turvy year, however the this annual report. the Lancashire County Pension Fund and Fund’s investment strategy is designed to the other funds that they are now dealing minimise the impact on value of the large The Fund has also continued to expand with are the best run within the Local swings that can be caused by market its local property holdings in Lancashire Government Pension Scheme. As a result movements. This year that strategy has and I am particularly pleased with the of these changes we have a new working paid off and the Fund’s performance was announcement shortly after the end of the Lancashire County Pension Fund Annual Report 2015 / 2016 7 financial year that the Fund will redevelop to put solar panels on the Fund’s various introduction of LGPS 2014 and in the run the Park Hotel building in Preston as a properties, thus reducing the environmental up to the valuation and this has kept the hotel. Where we can, as in this case, impact of the portfolio and providing added Pension Fund Committee as well as the achieve the appropriate return from a local benefits to our tenants. team busy. investment then there is no reason why we should not pursue it and help achieve the On the administration side the team 2016 is valuation year and all expectations wider social benefits for our area that such has continued to deal with the ever are that this valuation will be as challenging investment will bring. increasing number of both members and as the last one in terms of the ability employers and record levels of retirements to balance the various objectives and We have continued to work through our while maintaining very high levels of interests within the process. No doubt this approach to responsible investment performance. Of particular note is the will form a key part of next year’s foreword. looking to be a good owner of good fact that because of the high level of co- assets. This is an area where participating operation between employers and the in the Partnership will allow us to devote Fund in relation to managing and providing more resource to this important area. data we were able to issue 99% of active Reassuringly the various campaigns members’ annual benefit statements against poor corporate behaviour which on time. This was unusual in the Local have been raised with us over the last year Government Pension Scheme and reflects have all been in relation to companies in well on the effective planning undertaken which the Fund has no investment, or are for the introduction of LGPS 2014 and the in relation to broader issues where we are strong relationship between the Fund and already working with other LGPS funds to its employers. A considerable amount influence corporate behaviour. We have of work reviewing various fund policies also completed the investment programme has also been necessary following the County Councillor Kevin Ellard Chair of the Pension Fund Committee 8 Lancashire County Pension Fund Annual Report 2015 / 2016 C. Governance of the Fund the Lancashire County Pension Fund. Lancashire County Pension Fund Investment in Wind Farms, Governance Policy Statement Portugal The Pension Fund Committee has While the Pension Fund is not technically a considered the governance arrangements separate legal entity, it does have its own relating to the administration and strategic specific governance arrangements and management of Fund assets and liabilities controls which sit within Lancashire County in the light of guidance issued by the Council’s overall governance framework. Department for Communities and Local Government (DCLG) and the requirement Under regulation 55 of the LGPS to complete a Governance Compliance Regulations 2013, all Local Government Statement for all areas of governance of Pension Scheme (LGPS) Funds in England pension fund activities. and Wales are required to publish a Governance Policy Statement setting The Fund’s Governance Compliance out whether the authority delegates its Statement is shown on the following page: functions, or part of its functions to a committee, a sub-committee or an officer of the authority. Comprehensive terms of reference have been