MEMORANDUM Date 27 October 2010 ______
To: All Members of the From: Legal & Member Services Investment Committee Ask for: Adrian Service Ext: 25564 Minicom: 6611 My Ref: AS/ Your Ref: ______INVESTMENT COMMITTEE 29 SEPTEMBER 2010 MINUTES
ATTENDANCE MEMBERS OF THE COMMITTEE P J Bibby, N K Brook (Vice – Chairman), P V Goggins, T W Hone, D Lewis, D E Lloyd (Chairman), Joan Lloyd, S Markiewicz, C A Mitchell, R G Parker, J O Ranger.
Officers in Attendance M Parsons - Director of Resources and Performance G Clelland - Chief Finance Officer, Broxbourne Borough Council N Sykes - HCC Pension Fund Consultant A Service - Democratic Services Officer P Towey - Group Manager (Specialist Accounting)
Upon consideration of the Agenda for the Investment Committee meeting on 29 September 2010 as circulated, copy annexed, action was taken or decisions were reached on individual items as recorded below :-
MEMBERSHIP CHANGE
The Committee Chairman announced that Jim Ranger, a long standing member of East Hertfordshire District Council had been appointed to fill the vacancy created by the death of John Mansfield as one of the three Hertfordshire District / Borough Councils representatives on the Committee. He welcomed Jim Ranger to his first meeting of the Committee. He advised the Committee that Courtney Riches had succeeded Robin Norton as Unison’s Eastern Region Observer of the Committee and written confirmation of this was awaited.
DECLARATIONS OF INTEREST BY COMMITTEE MEMBERS No declarations of interest were made by Committee members in relation to the matters being considered at this meeting.
1 MEMORANDUM Date 27 October 2010 ______
1. RESPONSE TO AUDIT COMMISSION ON ANNUAL GOVERNANCE REPORT FOR 2009 / 10
The Director of Resources and Performance submitted a report outlining five recommendations made by the Audit Commission [set out in paras 2.2 to 2.6 on pages 1 and 2 of the submitted agenda report] in auditing the Pension Fund Accounts for 2009 / 10 and action proposed to be taken. Penny Irwin, Audit Manager, Audit Commission advised the Committee of the issues relating to the recommendations made. She stated that whilst the original intention was to sign off last year’s accounts on 30 September 2010 due to non Pension Fund issues, would not now be possible until, at the latest 29 October 2010. Consequently she advised that the Council’s letter of representation on the Pension Fund accounts should not be signed today but when the Audit Commission had signed them off. In response to a question on the late payment of pension contributions by employers, she stated that many local authorities’ pension funds experienced a high level of late contributions from employers within their schemes similar to or greater than Hertfordshire’s. In response to a question on the internal audit recommendation it was noted that contributing employers with a small number of employees may not have their own internal audit staff and the requirement of an annual audit check would not be undertaken. It was suggested that the Hertfordshire Pathfinder project could be utilised to highlight priority of the requirements of the Pension Fund to Hertfordshire Councils.
RESOLVED
That (a) the response to the recommendations of the Hertfordshire Pension Fund Annual Governance Report 2009 / 2010 be approved. The staff responsible and involved in completion of the Pension Fund accounts be congratulated for their proficiency. (b) the Committee agree the contents of the letter of representation on the Hertfordshire Pension Fund as set out on pages 3 to 5 of submitted agenda report and authorise the Director of Resources and Performance and Committee Chairman to sign the letter to be sent to the District Auditor confirming the representations made in auditing the Accounts have been considered and appropriately responded to, after the Audit Commission had signed them off.
EXCLUSION OF PRESS AND PUBLIC
That under Section 100 (A) (4) of the Local Government Act 1972, the public be excluded from the meeting for items of business in 2. to 9. below on the grounds that they involve the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12 to the said Act. 2 MEMORANDUM Date 27 October 2010 ______
2. PENSION FUND - SUMMARY STATEMENT AS AT 30 JUNE 2010 Nick Sykes and Patrick Towey informed that the last quarter had seen a fall in financial markets generally and the overall Fund value had fallen as well. During the last quarter, the overall return for the Fund was above the benchmark with four Managers [Baillie Gifford, Deutsche, Jupiter & BlackRock] matching or exceeding their benchmarks, in particular notable performances from Baillie Gifford and Jupiter. Fund Managers recording poor performances in the quarter were Alliance Bernstein and J P Morgan. Nick Sykes, commented on the continuing disappointing performance of Alliance Bernstein in particular changes to their senior management structure and analysts. The Committee in considering the cash flow information on page 6 of the submitted exempt information report, expressed the view that cash should be invested for longer term periods.
RESOLVED That (a) the report of the Director of Resources and Performance summarising the investments held at 30 June 2010, which detailed the performance of the Investment Managers during the last financial quarter, year and three year period be noted.
(b) future summary statement reports contain information indicating actual value of the fund i.e. impact of annuity rates etc..
3. PENSION FUND –-INVESTMENT MANAGER'S REPORT - (ALLIANCE BERNSTEIN INSTITUTIONAL PORTFOLIO) – FOR THE PERIOD UP TO 3O JUNE 2010
Patrick Rudden and Frances Smyth from Alliance Bernstein Institutional Investment attended the meeting and informed of the activities undertaken on behalf of the Pension Fund over the past year and the Manager's expectations together with their anticipated policy for the future. The Committee expressed their disappointment at the manager’s recent performance, noted the Manager’s view that investment returns would improve in the coming future but felt there would be no merit in sending the manager a further letter of concern. Future performance would be monitored and as part of the Council’s investment strategy review, consideration would be given to the future structure of the Fund and the asset classes used for investment purposes.
RESOLVED
That the report of Alliance Bernstein Institutional Investment be noted.
[Alliance Bernstein Institutional Investment two managers exited from the meeting at this point and Baillie Gifford’s two managers then entered the room.] 3 MEMORANDUM Date 27 October 2010 ______
4. PENSION FUND - INVESTMENT MANAGER’S REPORT (BAILLIE GIFFORD PORTFOLIO) FOR THE QUARTER ENDING 30 JUNE 2010
Lynn Dewar and Anthony Tait from Baillie Gifford attended the meeting and informed of the activities undertaken on behalf of the Pension Fund over the past year and the Manager's expectations together with their anticipated policy for the future. It was noted that at the end of this week it would be the Manager’s 20th year anniversary of being engaged by the Council.
RESOLVED
That the report of Baillie Gifford be noted.
[Baillie Gifford’s two managers exited from the meeting at this point and BlackRock’s two managers then entered the room.]
5. PENSION FUND - INVESTMENT MANAGER'S REPORT (BLACKROCK PORTFOLIO) - FOR THE QUARTER ENDING 30 JUNE 2010
Theresa Holland and Paul Shuttleworth from BlackRock attended the meeting and informed of the activities undertaken on behalf of the Pension Fund since the last meeting they attended on 10 March 2010 and the Manager's expectations together with their anticipated policy for the future.
The Committee in particular noted the limited value the Manager had added to the Pension Fund through investment in bonds over the last 9 months.
RESOLVED
That the report of BlackRock be noted.
[BlackRock’s two managers exited from the meeting at this point.]
6. PENSION FUND –- INVESTMENT MANAGER’S REPORT (RCM INVESTMENT MANAGEMENT PORTFOLIO) FOR THE QUARTER ENDING 30 JUNE 2010
RESOLVED
That the report of RCM Investment Management be noted.
7. PENSION FUND - INVESTMENT MANAGER’S REPORT (JUPITER ASSET MANAGEMENT PORTFOLIO) FOR THE QUARTER ENDING 30 JUNE 2010
RESOLVED That the report of Jupiter Asset Management be noted. 4 MEMORANDUM Date 27 October 2010 ______
8. PENSION FUND - INVESTMENT MANAGER’S REPORT (DEUTSCHE INVESTMENT MANAGEMENT PORTFOLIO) FOR THE QUARTER ENDING 30 JUNE 2010
RESOLVED That the report of Deutsche Investment Management be noted.
9. PENSION FUND - INVESTMENT MANAGER'S REPORT (J P MORGAN INVESTMENT MANAGEMENT PORTFOLIO) - FOR THE QUARTER ENDING 30 JUNE 2010
RESOLVED
That the report of J P Morgan Investment Management be noted.
10. MINUTES
The Minutes of the meeting of the Investment Committee held on 15 June 2010 were confirmed as an accurate record.
11. MATTERS ARISING FROM THE MINUTES
None.
12. PENSION FUND STRATEGY
The Director of Resources and Performance submitted a report suggesting that it would be an opportune time to review the Pension Fund strategy at the same time as the triennial valuation of the Pension Fund, the results of the valuation would be known towards the end of this year. The purpose of the review would be to set an appropriate strategy for the Fund taking into consideration the liabilities with an objective of achieving a fully funded Fund over 20 years or longer. Nick Sykes outlined the suggested pension fund strategy review and various stages of the review as contained in his submitted 8 page agenda report. The Committee Chairman outlined considerations that could be taken into account during this review and unlike a private company, if the future Pension Fund liabilities / commitments could not be met from its assets, Council tax proceeds could be used. The longer term objective was to achieve a fully funded scheme with stable and affordable employers contributions. The Director of Resources and Performance stated any increase in the employers contributions to achieve 100% funding of all liabilities would be done gradually and over time as substantial increases would cause financial difficulties at a time when public spending reductions were being activated. 5 MEMORANDUM Date 27 October 2010 ______
In response to a question on the data stated in para 2.5 on page 7 of the Mercer’s report, Nick Sykes clarified that the risk and return characteristics information were stated in the wrong order with the return characteristic being stated first in the submitted report.
RESOLVED
That (a) a review of the investment strategy of the Pension Fund along the lines suggested in the submitted agenda reports be undertaken (b) additional training for Committee members as part of the investment strategy review including training sessions at ad-hoc meetings as necessary be agreed. (c) the Director of Resources and Performance, following receipt of guidance from the Chief Legal Officer on political proportionately and in consultation with the Committee Chairman be authorised to establish a Sub - Committee to undertake a strategy review exercise before bringing a proposal to the Committee. This Sub - Committee be authorised to undertake future ad - hoc projects as when required.
13. PENSIONS KNOWLEDGE AND SKILLS
The Director of Resources and Performance submitted a report outlining the expectation for those responsible for decision making on public sector pensions to have or acquire experience / skills and keep up to date with sufficient knowledge to perform this responsibility. Patrick Towey stated that the Council’s actuary, Hymans Roberson, working in partnership with CIPFA, had launched a knowledge and skills tool kit to support elected members and officers in their decision making process. It was proposed that this toolkit in addition to training work shops be used to develop and enhance members’ knowledge of pensions. He stated that the toolkit would be available for Committee members to access and use at home as it was an on line tool.
Additionally as discussed at the last Committee meeting, training sessions involving the Council’s engaged investment managers would take place in the future on some Committee meeting days. The first training session would take place at one of the Fund Manager’s offices in London at the next Investment Committee meeting on Wednesday 1 December 2010. The Committee Chairman considered that it would be beneficial for Investment Committee Members who were responsible for taking decisions and monitoring the pension fund, to receive additional training in the form of workshops or the on line tool provided by the Fund’s actuary, Hymans.
6 MEMORANDUM Date 27 October 2010 ______
RESOLVED
That (a) the CIPFA Skills and Knowledge Framework be adopted for use by Committee Members and officers. (b) the Hymans toolkit be provided to members and officers as a training tool in the development of their knowledge of pension fund investments, actuarial work, and the regulations governing the Local Government Pension Scheme (LGPS). (c) the next Investment Committee meeting on Wednesday 1 December 2010 be held at one of the Managers offices in London so that training can be provided. The meeting or training session whichever is first, start at 10.30 am [the later start time to take account of travelling and travel cost discounts]. The arrangements for subsequent meetings when training is proposed to be provided be reviewed in the light of the experience of the December 2010 meeting. (d) additional training during the review of the Investment Strategy for the Fund be undertaken.
14. APPOINTMENT OF PENSION FUND ADMINISTRATOR
The Director of Resources and Performance submitted a report advising that the London Pensions Fund Authority [LPFA] had been awarded the contract to become the Hertfordshire Pension Fund administrator with effect from 1 April 2011. It was understood that LPFA staff responsible for Herts pension administration work would be mainly based at County Hall, Hertford.
He stated that meetings were being held next week with the existing administrator, SERCO concerning handover arrangements.
RESOLVED
That the appointment of London Pensions Fund Authority as the Hertfordshire Pension Fund administrator with effect from 1 April 2011 be noted.
15. REVIEW OF PENSION FUND ADMINISTRATION
The Director of Resources and Performance submitted a report outlining the working administration arrangements for the Hertfordshire Pension Fund, in particular changes and what had occurred in the last three months since the Committee meeting on 15 June 2010.
7 MEMORANDUM Date 27 October 2010 ______
Membership of the Fund was as follows : -
Type of members as at as at Change during 30 April 2010 31 July 2010 last quarter Active contributing members 28,610 28,001 - 609 [-2.1%] Deferred members 23,980 24,354 374 [1.5%] Pensioners 19,992 20,198 206 [0.8%] Total Membership 72,582 72,553 - 29 [0.04%] The Group Manager (Specialist Accounting) stated that the number of late payments had increased from 8 to 15 employers for the last quarter. 14 out of the 15 outstanding payments had been received with Highfield Park Trust the only one now outstanding. Warning letters had been issued to two employers who had been persistently late with payments for the last few months and the outstanding payments had been received ahead of today’s meeting. He stated that the number of processes outstanding by SERCO had increased by 1,497 to 1,739 in the last quarter which was above the Service Level Agreement of 1,500. RESOLVED That the report reviewing administration issues of the Hertfordshire Pension Fund at 31 July 2010 be noted.
16. PENSION FUND – REVIEW OF VOTING POLICY The Director of Resources and Performance submitted a report outlining the voting by the Council's engaged Investment Managers, at large companies AGMs or EGMs, where the Hertfordshire Pension Fund had been invested, during the period July 2009 till June 2010. He stated that the Investment Managers had cause to vote 209 times where the Council's investment was concerned and in all but 7 occasions had followed the advice given by RREV (Research, Recommendations and Electronic Voting). He advised that the 7 incorrect voting occasions involved Jupiter 6 times and Deutsche once. It was noted that in the six occasions when Jupiter had failed to vote in accordance with RREV advice they had not contacted the Council’s officers requesting consent to vote against guidance. RESOLVED That (a) the Investment Managers casting of votes at Companies AGMs and EGMs involving Hertfordshire Pension Funds in accordance with voting advice given by RREV be noted. (b) the Director of Resources and Performance be requested to write to Jupiter Asset Management expressing his concerns regarding their voting on 6 occasions at AGMs and EGMs during 2009 / 2010 where the Council’s investments were concerned, contrary to the RREV (Research,
8 MEMORANDUM Date 27 October 2010 ______Recommendations and Electronic Voting) advice and with not seeking prior clearance from him or his staff.
16 DATES OF FUTURE MEETINGS
The Committee noted that the dates of future meetings were as follows : - a) Wednesday 1 December 2010 at 10.30 am or 2pm [dependant on time of training session]. b) Wednesday 2 March 2011 at 10.00 am c) Tuesday 14 June 2011 at 10.00 am.
Kathryn Pettitt Chief Legal Officer
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