Essex Pension Fund Report and Accounts 2009-2010 ­­­Contents Section 1: Introduction & Overview 3 Chairman’s Foreword 6 Statement from the Director for Finance 8 Financial Summary 9 Management Structure 11 Business Plan Section 2: Investments 16 Asset Allocation Benchmark as at 31 March 2010 17 Investment Strategy and Performance 22 Equity and Direct Property Holdings Section 3: Pensions Services 24 Statement from the Pension Services Manager 25 Membership Summary 25 Key Service Standards for Scheme Members 26 Scheme Details 28 Participating Employers of the Fund Section 4: Scheme Actuary 34 Statement by Consulting Actuary Section 5: Annual Statement of Accounts 39 Responsibilities for Statement of Accounts 40 Fund Account 41 Net Asset Statement 42 Notes to the Accounts 52 Statement by External Auditor Section 6: Additional Information 54 Statement of Investment Principles 80 Funding Strategy Statement 104 Governance Compliance Statement 114 Communications Policy Statement 120 Glossary Contact points 2 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & OverviewIntroduction Chairman’s Foreword In sharp contrast to 2008/09 the world’s investment markets experienced a welcome upturn in fortune and as a result I am pleased to announce that the Fund has very much benefited, with an improved year in terms of investment performance. The Fund recorded an investment return of 35.5% for the 12 months to 31 March 2010, equalling its challenging bespoke benchmark. By the year end the value of the Fund had increased to £3.1 billion, its highest ever recorded level. The increase in the market value of assets held was £779m and investment income of £47m was received during the year. The Essex Pension Fund Board, established In May 2010 Cllr Rodney Bass became in 2008 as an overarching body to oversee Chairman of Essex County Council. The the functions of the County Council as Administering Authority of the Fund, includes County Councillor for Heybridge and representatives of both Fund employers and Tollesbury since 1997, he first served on members. The composition of the Board is the Investment Steering Committee in shown under the Management Structure 1999 and was elected Chairman in 2001 section of this publication. Its terms of reference and those of the ISC are set out an office he has continued to hold since in full in the Governance Arrangements in that time. In June 2010 on his re-election Section 6 of the Report. as Chairman of the Investment Steering The Board met on five occasions during its Committee, by virtue of that office, he first full year and undertook a full programme was also re-elected Chairman of the of work. Essex Pension Fund Board, a position he One of the first responsibilities of the newly has held since its formation in 2008. formed Board was the appointment of Karen McWilliam as the Independent Governance and Administration Adviser to the Fund. It is my pleasure, as Chairman of the Essex Pension Fund Board (the Board) and the The Board also approved arrangements for a Investment Steering Committee (ISC) to separate bank account for the Pension Fund. introduce the Essex Pension Fund Report and There is now a statutory requirement for all Accounts for 2009/10. local government pension schemes to have Essex Pension Fund Annual Report & Accounts 2009-2010 3 separate banking arrangements in place by Hardy (independent adviser) and Hymans April 2011. I am pleased to announce that Robertson (Investment Consultants) are the Essex Fund’s separate bank account external advisers to the Fund. arrangements went live on 1 April 2010. The The ISC has undertaken a full and active Board also approved a joint business plan programme of work during the year. It for Investments and Pension Services for the revisited its Core Investment Beliefs and year and during the course of the year has confirmed that they were still applicable as received regular updates regarding progress. a guide to setting appropriate investment It has also received quarterly updates strategy. With this in mind, they were on the Investment Steering Committee’s then used in the annual review of asset activities and has agreed policies in respect allocation and investment management of Administering Authority Discretions, arrangements to fine tune the fund structure Abatement, Admissions and Bulk Transfers. and asset allocation. In particular, the review A full programme of training was approved concentrated on the non equity asset classes. and arranged for the Board in order to Much of the work of the ISC through the allow its members to acquire the detailed remainder of the year has been around the knowledge necessary to exercise their implementation of the revised structure. responsibilities effectively. This involved terminating one active global In particular, training sessions included an equity mandate, awarding a new mandate overview of the LGPS and related pension for a unconstrained global equity manager, matters, the role and operations of Pensions removing the allocation to UK Corporate Services, outsourcing, admissions and bulk bonds from the income portfolio of the transfers and a session on the funding review. swing mandate, revising the active global bond mandate to a 100% UK corporate bond The ISC’s terms of reference remain mandate. The decision was also made to unchanged and it continues with its delegated realign the actual allocation of property responsibility for overseeing the management back to its strategic 12% benchmark and to of the Fund’s investments. The composition dis-invest from the remaining Shareholder of the ISC is shown under the Management Activism vehicles. Structure section of this publication. Its composition reflects the political balance Details of the Fund structure and mandates of Essex County Council. Independent are shown on pages 9 to 10 and fund manager observers representing the employers and the performance is shown on page 19. membership also attend and fully participate The ISC also dealt with a number of other in discussions. The ISC is supported by issues including examining the Fund’s Margaret Lee, Director for Finance and proposed treasury management arrangement her staff. Keith Neale (the former County for the newly formed separate bank Treasurer now independent adviser), Tony 4 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & OverviewIntroduction account as well as reviewing its other cash management arrangements, monitoring investment manager performance, beginning the process of market testing the contract for its Institutional Investment Consultant and Independent Investment Advisers and revising its Statement of Investment Principles. I would like to take this opportunity to thank the members of the Essex Pension Fund Board and the Investment Steering Committee, the Director for Finance, the Investment team, the Pensions Services team, Fund advisers and all who participated in the management of the Fund, for their work during the year. I hope that you find that this report provides you with clear information on the activities of the Fund and demonstrates the effective management of the Fund’s financial affairs. Cllr. Rodney L. Bass Chairman of Essex County Council, Essex Pension Fund Board and Investment Steering Committee Essex Pension Fund Annual Report & Accounts 2009-2010 5 Statement from the Director for Finance delegated either to the Essex Pension Fund Board (the Board), the Investment Steering Committee (ISC) or to its officers. Investments and contributions monitoring along with the Fund’s accounting, is carried out by Martin Quinn, Head of Investments and his staff on the Investments Team. Membership and benefit administration and related functions are carried out by Jody Evans, the Pensions Services manager and her staff in Pensions Services. A report by the Pensions Services Manager on their activities appears later in this report on Pages 24 –25. The foreword by the Chairman of the Board and the ISC provides detail on their roles and the work Margaret Lee, was appointed Director they have carried out during the year. The for Finance in June 2010. She joined purpose of this statement is to highlight the manner in which the Fund has fulfilled its Essex County Council in 1990 and remaining responsibilities during the year. has been involved with the Fund Interim Review of the Fund – A triennial since 2007. review of the Fund as at the 31 March 2010 has commenced, although results will not be Overview available until late 2010. The Fund’s Actuary, Under the Local Government Pension Scheme however, was commissioned to carry out an (Administration) Regulations 2008, the Interim Review as at 31 March 2009. The review County Council is required to maintain a did not constitute a full actuarial valuation pension fund (the Fund) for its employees but was intended to give an estimate of the and those of other Scheduled Bodies within financial position of the Fund at that date. The its area. The Fund is also empowered to review showed that the overall funding level admit the employees of certain other bodies, has fallen to 51% from 66% as at 31 March town and parish councils, educational 2008, which compares to 80% at the 31 March establishments, contractors providing 2007 Valuation. services transferred from scheduled bodies The fall in funding level over this period was and community interest bodies. As a result very much due, like the previous year, to the Fund now contains around 420 separate significantly poor market conditions. Index employing bodies. linked gilt yields fell sharply, as did market The majority of the County Council’s functions investments around the world. However, on a as administering authority of the Fund are more positive note, markets from 1 April 2009 6 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & OverviewIntroduction experienced a sharp resurgence in fortune. In Policy Statements (GCPS) setting out the October 2009 the funding level of the Fund was governance and communication arrangements once again measured and was found to be in of their pension funds.