Dyfed Pension Fund Annual Report & Accounts 2018-2019 Supporting responsible investing To register for ‘My Pension Online’, go to: www.dyfedpensionfund.org.uk CONTENTS Chairman’s Foreword..................................................................................................................................................... 1 Introduction .......................................................................................................................................................................... 2 Section 1 - Management and Financial Performance Reports Fund Management and Advisers.......................................................................................... 3 Risk Management.............................................................................................................................. 5 Financial Performance .................................................................................................................. 6 Section 2 - Investment Policy and Performance Reports Fund Investments.............................................................................................................................. 7 BlackRock................................................................................................................................................. 12 Schroders................................................................................................................................................. 17 Partners Group.................................................................................................................................... 22 Performance and Risk.................................................................................................................... 26 Independent Investment Adviser......................................................................................... 28 Section 3 – Fund Administration Report.................................................................................................... 30 Section 4 – Actuarial Report................................................................................................................................. 39 Section 5 – Governance Pension Board Annual Report................................................................................................ 40 Governance Policy Statement................................................................................................ 42 Governance Compliance Statement................................................................................. 46 Section 6 – Statement of Accounts................................................................................................................ 50 Section 7 – Funding Strategy Statement.................................................................................................... 84 Section 8 – Investment Strategy Statement............................................................................................ 93 Section 9 – Communications Policy Statement.................................................................................... 102 Glossary .......................................................................................................................................................................... 106 Contacting the Fund.................................................................................................................................................... 107 If you need this information in large print, braille or on audio tape, please call 01267 224194 Dyfed Pension Fund Annual Report & Accounts 2018-2019 1 CHAIRMAN’S FOREWORD It is with great pleasure that I present this year’s Annual Report of the Dyfed Pension Fund. This year’s theme of “Supporting Responsible Investing” was chosen because economic, social and governance factors have now become one of the key considerations when making investment decisions in the LGPS. As I mentioned in last year’s annual report we approved an investment of 5% of the Fund in an alternatives income generating asset. I can now confirm that your fund has investments in the BlackRock UK Strategic Alternative Income Fund where some of the core strategies are in the renewable energy sector and a number of different sectors that have a direct impact on local communities including healthcare and social housing. During 2019 - 20 we will also be considering an investment in a low carbon fund with one of our current managers. So ‘watch this space’! The year to 31 March 2019 has seen continued strong investment performance for the Fund’s assets which delivered returns of 6.5%. This has taken the value of the assets to £2.6bn at the end of the year. We are far from complacent about this performance, as there are uncertain times ahead so the Pension Committee continues to closely monitor the investment portfolios. We have continued to work with the other seven Welsh funds as part of the Wales Pension Partnership (WPP). We will eventually be pooling the majority of our investment assets together with the other funds in order to achieve fee savings from the investment managers. This year marked the first portfolios to be moved into the WPP. We transitioned our Columbia Threadneedle and Baillie Gifford global equity investments (circa £590m) into the Global Growth Fund. This first stage has realised savings for our fund of approximately £1m per annum over the long term. Both myself and officers are heavily involved in monitoring the performance of the pool and in keeping track of savings and costs as Carmarthenshire County Council is the host authority for the WPP and I am a member of the Joint Governance Committee. We are now beginning the important work of the triennial actuarial valuation, which will set the employers’ contribution rates for the next few years. We continue to work with our actuary, Mercer, and I will report back on the results of the valuation in next year’s annual report. My Pension Online continues to be an essential tool for our members to change their personal details, see the pension accrued to date and forecast what pension they could receive at a future date. There are now 48 active employers within the Dyfed Pension Fund with 47,250 members (18,344 current employees, 13,187 pensioners and 15,719 deferred members). In the wider LGPS world, there are a number of challenges and opportunities on the horizon which the committee and officers are monitoring. These include consultations on Exit Payments, Fair Deal and Quadrennial Valuations and also the McCloud case and its potential impact on adjustments to the Scheme as part of the Cost Cap mechanism. The Fund is taking an active role in responding and engaging with these matters and awaits with interest to see the different outcomes. During the year up to March 2019 there has been one change to the membership of the Pension Committee. We welcomed Councillor Rob Evans to the Committee in February 2019. Councillor John Prosser left the Committee during the year and we thank him for his contribution and wish him well for the future. Once again this year I’d like to thank the members of the Pension Committee who have risen to the challenge of providing governance, stewardship and direction for the Fund. My thanks also go to the senior managers and officers in the Administration and Investment teams for their commitment and hard work towards delivering a quality service during the year. I can assure you that the Fund recognises that the LGPS continues to be a high quality and highly valued defined benefit pension scheme for public sector workers. There are challenges in relation to the costs, affordability and sustainability of the scheme but we are as well placed as other funds to meet these challenges. Councillor Elwyn Williams Chairman of the Pension Committee Dyfed Pension Fund Annual Report & Accounts 2018-2019 2 INTRODUCTION The pension committee, advisor and officers engage with our investment managers regularly to monitor their performance and to receive information on their governance and sustainability measures. The reports they present include how they invest and engage with companies and how they govern themselves. We are all aware of our obligations to responsible investing and the risks associated with environmental factors including climate change. Consequently, as the Chairman mentioned in his foreword, we are reviewing our investments with our managers and considering low carbon options. I will report back on progress in next year’s annual report. This year has seen increasing governance and reporting requirements across the Fund whilst at the same time the drive for improved cost efficiencies and transparency has continued via increased performance reporting and the collective investment pooling arrangements. As the Chairman mentioned, overall membership of the Fund has increased during the year by 1.5% to 47,250. What is noticeable is that active membership has declined whilst non actives (pensioners and deferred members) have increased by 3.5%. The net effect is that active contributors have now fallen to 39% of the total fund membership with 28% of the total membership drawing pension benefits and a further 33% having deferred benefits. Workloads have therefore, not surprisingly, continued to increase in most areas with over 23,000 cases being considered during the year. More detail can be found in Section 3 – Fund Administration Report. The Administration team has redeveloped the ‘My Pension Online’ facility