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CORNWALL PENSION FUND ANNUAL REPORT FUTURE2008-09 ©iStockphoto.com Cornwall Pension Fund Annual Report 2008-09 Contacts Information about the Scheme and Membership Pensions Section Human Resources Room 109 New County Hall Truro TR1 3AY 01872 322322 E-mail: [email protected] Calvin Matthews Pensions Manager 01872 322304 [email protected] Matthew Trebilcock Assistant Pensions Manager 01872 322246 [email protected] Information about Pension Fund Investments and Strategic Issues Pension Investments Section Finance Room 101 New County Hall Truro TR1 3AY E-mail: [email protected] Jackie Shute Treasury and Investments Manager 01872 322212 [email protected] John Hughes Fund Investments Officer 01872 323210 [email protected] 22964 1109 Contacts So, what of the future? CORNWALL PENSION FUND ANNUAL REPORT 2008-09 Information about the Scheme People have always tried to predict what the Contents and Membership future holds for us. Whether it is in science and technological Pensions Section advance, changes in how we live together and Chairman’s Statement 4 Performance of the Fund Human Resources our political structures or the natural world and Auditor’s Opinion 5 Annual global stockmarket commentary 14 Room 109 the Universe generally, there has been some great New County Hall Market values 16 predictions for the shape of things to come. Governance Truro TR1 3AY Income on the Fund 16 01872 322322 However, even with the contemplations from Committee some of the greatest minds over the ages, views General statistics 16 E-mail: [email protected] The Scheme of Delegation 7 of the future have often been amusingly - and Commentary 18 sometimes catastrophically - way off the mark. Role of the Committee 7 Calvin Matthews Movements in investment market indices Pensions Manager We can all look back with a smug smile asking Committee membership and attendance 8 during 2008-09 19 01872 322304 how could they have got it SO wrong! Scheme Membership Charts on equity and property unit trust holdings 20 [email protected] But we do this at our peril. Contributors and pensioners 8 As we have only recently discovered in the world Matthew Trebilcock Regulatory framework economic sphere, nothing is certain. Financial Statements Assistant Pensions Manager The Annual Report 9 01872 322246 The message from all this crystal ball gazing is Fund Account 22 [email protected] that we just don’t really know what the future The Scheme and benefits available 9 Net Asset Statement 23 holds for any of us. We should therefore seriously The regulations relating to the Fund’s Assets 9 prepare for our financial future even though it can Notes to the Financial Statements 23 Information about Pension Fund Regulation changes and developments Investments and Strategic Issues seem a lifetime away. in Cornwall 10 Actuarial Report 29 Investing in the Cornwall Pension Fund can give Work programme and future 11 Pension Investments Section us a great deal of future proofing regardless of Finance what that future may bring. Room 101 Regulatory Statements New County Hall Fund Management Funding Strategy Statement 33 Truro TR1 3AY E-mail: [email protected] Fund allocations 12 Governance Compliance Statement 46 Fund managers 13 Governance Policy Statement 50 Jackie Shute Fund managers’ attendance at Statement of Investment Principles 53 Treasury and Investments Manager Pensions Committee 13 01872 322212 Communication Statement and Timeframes 70 [email protected] Officer visits to fund managers’ offices 13 Custodian services 13 John Hughes Corporate governance 13 Fund Investments Officer 01872 323210 Myners Principles 13 [email protected] Socially Responsible Investment (SRI) 14 Cornwall Pension Fund Annual Report 2008-09 3 Chairman’s statement The twelve month period to 31st March 2009 There were a number of changes in fund One initiative underway is the pursuance of an was a challenging time for any institution or management during the year. Legal and General Asset Review. This will involve an external review of organisation where finance had a high profile. were appointed as passive global equity managers the current asset structure in terms of the level of It was disappointing to see the growth of the and we expect to be funding them shortly and risk being taken and whether this is appropriate for previous years lost over such a short period of possibly using them as transition managers. We are the scheme, taking account of its liabilities. time. Conversely, it was pleasing to note that pleased with this appointment and the flexibility In 2009-10, we are experiencing even more the diversity of our portfolio enabled the Fund offered within the mandate will ensure the Fund changes, With a newly structured Council and to weather the turbulent times better than some is well placed to make any further changes to many new faces amongst officers and Members, others, which were more heavily invested in the structure of the fund managers. In addition, came a new Pensions Committee – a committed equities. we also made a commitment to enter into a and enthusiastic group focusing on the tasks ahead The crisis in the financial markets presented fund UK Financing Fund with M & G. Other changes of them. Various ways of training are in hand and managers with unprecedented difficulties in included an investment in an All Asset Deep Value we are exploring differing ways of meeting the the positioning of their portfolios; the dramatic Fund, which was entered into part way through the fund managers. year but terminated shortly afterwards, as a result collapse of the financial sector in particular Ahead of us lie further legislative changes. of the retirement of key staff. Another fund that caught some of our equity managers off-guard. Changes relating to cost sharing are likely to have terminated during the year was the Hermes Focus We were, however, fortunate that at least one a significant impact on the Fund in terms of the Fund, which was liquidated as a result of a review of of our equity managers had expected poor balance of risk borne by both employers and their partnership structure. results from this sector and consequently was employees; and if one thing is for certain in the able to avoid significant losses. Other managers The ‘New Look’ Pension scheme, introduced in April LGPS, it is that change is inevitable! were less fortunate and fundamental analysis of 2008, brought with it many changes, including Clearly we do not know what the future holds and long term factors distracted from the extreme the introduction of tiered contribution rates. I am how events impacting on the Fund will unfurl. All volatility felt in the short term. Central Bank bail- pleased to report it was implemented smoothly we can do, therefore, is to try and plan, reduce out packages were necessary for many banks, and members of the Fund were well informed risk and increase stability. We look forward to an which in turn damaged equities significantly. The about the changes. exciting year ahead. Fund, unfortunately, had holdings in Freddie Mac Another ‘new’ during the year was the joining of and Fannie Mae at the time they were taken into ClubVita, the longevity comparison club. This conservatorship in September, which damaged membership enables us to obtain detailed analysis Councillor Morwenna Williams returns. In addition, the Fund had exposure to RBS of pensioner longevity specific to Cornwall Pension Chairman of Pensions Committee at the time that the UK government purchased its Fund, thus enabling us to build more accurate stake. assumptions into the valuation process soon to be The drastic action taken by central banks globally, upon us, in March 2010. The issues around valuing by cutting interest rates, was helpful in easing some the Fund in the midst of the worst financial crisis for of the blockages in the financial system. However, almost a century will undoubtedly place significant it was when the Bank of England went further and pressure on contribution rates going forwards. introduced a programme of quantitative easing To lessen the impact, we are working hard with through the Asset Purchase Facility, in the first our actuary, in the lead up to March, to ensure as quarter of 2009, that the bond markets reacted much stability as we can for employers, whilst still significantly. protecting the interests of the Fund. 4 Cornwall Pension Fund Annual Report 2008-09 Auditor’s opinion Independent auditor’s report to the Members of relevant legal and regulatory requirements and pension fund accounts and related notes and Cornwall Council International Standards on Auditing (UK and consider whether it is consistent with the audited Ireland). pension fund accounts. This other information I have audited the pension fund accounts for comprises the remaining elements of the Pension the year ended 31 March 2009. The pension I report to you my opinion as to whether the Fund Annual Report. I consider the implications fund accounts comprise the Fund Account, the pension fund accounts present fairly, in accordance for my report if I become aware of any apparent Net Assets Statement and the related notes. The with relevant legal and regulatory requirements misstatements or material inconsistencies with pension fund accounts have been prepared under and the Code of Practice on Local Authority the pension fund accounts and related notes. the accounting policies set out in the Statement of Accounting in the United Kingdom 2008, the My responsibilities do not extend to any other Accounting Policies. financial transactions of the pension fund during information. the year and the amount and disposition of the This report is made solely to the members of fund’s assets and liabilities, other than liabilities Basis of audit opinion Cornwall Council in accordance with Part II to pay pensions and other benefits after the end of the Audit Commission Act 1998 and for no I conducted my audit in accordance with the of the scheme year.