Essex Pension Fund Report and Accounts 2008-2009 ­­­Contents Section 1: Introduction & Overview 3 Chairman’s Foreword 5 Statement from the Chief Financial Officer 7 Financial Summary 8 Management Structure Section 2: Investments 10 Asset Allocation Benchmark as at 31 March 2009 11 Investment Strategy and Performance 16 Equity and Direct Property Holdings Section 3: Pensions Services 18 Statement from the Pension Services Manager 19 Membership Summary 19 Key Service Standards for Scheme Members 20 Scheme Details 22 Participating Employers of the Fund Section 4: Scheme Actuary 28 Statement by Consulting Actuary Section 5: Annual Statement of Accounts 33 Responsibilities for Statement of Accounts 34 Fund Account 35 Net Asset Statement 36 Notes to the Accounts 45 Statement by External Auditor Section 6: Additional Information 47 Statement of Investment Principles 72 Funding Strategy Statement 96 Governance Compliance Statement 106 Communications Policy Statement 112 Glossary Contact points 2 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & OverviewIntroduction Chairman’s Foreword The year 2008/09 could be described, in the words of the Chinese curse, as an “interesting time” for the Essex Pension Fund. It included perhaps the worst period for investment markets and economies since the 1920s, the introduction of a new Local Government Pension Scheme from 1 April 2008, an internal review of the Fund’s governance arrangements with the aim of achieving best practice and the establishment of the Essex Pension Fund Board (the Board). It has therefore been an extremely busy year for both the members of the Board and ISC and the Fund’s officers. The Board was established as an overarching Cllr Rodney Bass, became the County body to oversee the functions of the County Council as Administering Authority of the Councillor for Heybridge and Tollesbury Fund and includes representatives of Fund in 1997. He first served on the employers and members. The composition of Investment Steering Committee in 1999 the Board is shown under the Management and was elected Chairman in 2001 – a Structure section of this publication. Its terms of reference and those of the ISC are set position he has held since then. In May out in full in the Governance Arrangements 2008 he became Vice Chairman of the in Section 6 of the Report. It met only once Council and in June 2008 he was re- during the year and that meeting concentrated on explaining and exploring the roles and elected as Chairman of the Investment responsibilities of the Board, the ISC and Steering Committee and, by virtue of officers and familiarising the new members of that office, became the first Chairman of the Board with the operations of the Fund. the new Essex Pension Fund Board. The ISC’s terms of reference remain largely unchanged and it continues with its delegated responsibility for overseeing the management of the Fund’s investments. The composition It is my pleasure, as Chairman of the Essex of the ISC is shown under the Management Pension Fund Board (the Board) and the Structure section of this publication. It Investment Steering Committee (ISC) to includes representatives from each of the introduce the Essex Pension Fund Report and main political parties reflecting the political Accounts for 2008/09. balance of Essex County Council. Independent Essex Pension Fund Annual Report & Accounts 2008-2009 3 observers representing the employers and the The ISC also dealt with a number of other membership also attend and fully participate issues including a revision of its Statement of in discussions. The ISC is supported by Nick Investment Principles, monitoring investment Bell Executive Director of Finance & Deputy manager performance and reviewing its cash Chief Executive and his staff including the Chief management arrangements. Financial Officer Margaret Lee (the Council’s It has been however a disappointing year in Section 151 Officer). Keith Neale (the former terms of investment performance, with the County Treasurer now independent adviser), Fund recording an investment return of -21% Tony Hardy (independent adviser) and Hymans for the 12 months to 31 March 2009. However Robertson (Investment Consultants) are this should be seen in the context of the external advisers to the Fund. severe negative returns that were experienced The ISC has undertaken a full and active across all markets, with the Fund’s benchmark programme of work during the year. It reviewed recording a comparative figure of -19.9%.The its arrangements for independent investment value of the Fund at the year end had fallen to advice through a market testing process. It £2.2 billion. The decrease in the market value reviewed its approach to investments and set of assets held was £709m and investment out for the first time its Core Investment Beliefs. income of £69.9m was received during the year. These were then used in the annual review of I would like to take this opportunity to thank asset allocation and investment management the members of the Essex Pension Fund Board arrangements to develop a Fund structure and and the Investment Steering Committee, asset allocation that was in line with those the Executive Director of Finance, the Chief beliefs. Much of the work of the ISC through Financial Officer, the Investment team, the the remainder of the year has been around the Pensions Services team, Fund advisers and all implementation of the new structure which who participated in the management of the involved terminating 4 active equity mandates, Fund, for their work during the year. increasing mandates for 3 existing global equity managers, a passive manager and the I hope that you find that this report provides emerging markets manager and initiating you with clear information on the activities a search for a new unconstrained global of the Fund and demonstrates the effective equity manager. Details of the Fund structure, management of the Fund’s financial affairs. mandates and fund manager performance are shown on pages 9-14. A full programme of training was approved and arranged for the Committee in order to equip it to undertake the necessary considerations and Cllr. Rodney L. Bass take the required decisions, including sessions Chairman – Essex Pension Fund Board and on environmental, social and governance issues, Investment Steering Committee global property, forestry and timber, the relative value of assets and the Marathon Club principles. 4 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & OverviewIntroduction Statement from the Chief Financial Officer The majority of the County Council’s functions as administering authority of the Fund are delegated either to the Pension 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 Pension Services manager and her staff in Pension Services. A report by the Pension Services Manager on their activities appears later in this report on Pages 18-21. The foreword by the Chairman of the Pension Margaret Lee,was appointed Chief Board and the ISC provides detail on their Financial Officer in November 2008. roles and the work they have carried out during the year. The purpose of this statement She joined Essex County Council in is to highlight the manner in which the Fund 1990, and has been involved with the has fulfilled its remaining responsibilities Fund since 2007. during the year. Interim Review of the Fund – Although a Overview triennial review of the Fund was not due Under the Local Government Pension Scheme to take place until 31 March 2010, with (LGPS) Regulations 1997, the County Council results not available until late 2010, the is required to maintain a pension fund (the Fund’s Actuary was commissioned to carry Fund) for its employees and those of other out an Interim Valuation as at March 2008. Scheduled Bodies within its area. The Fund The review did not constitute a full actuarial is also empowered to admit the employees valuation but was intended to give an of certain other bodies, town and parish estimate of the financial position of the fund councils, educational establishments, at that date. The review showed that the contractors providing services transferred overall funding level has fallen to 66%, which from scheduled bodies and community compares to 80% at the 2007 Valuation. interest bodies. As a result the Fund now The fall in funding level over the year was due contains around 350 separate employing to significant market conditions. Index linked bodies. gilt yields fell, as did market investments around the world. Essex Pension Fund Annual Report & Accounts 2008-2009 5 For the 2007 valuation the Actuary has governance and communication arrangements adopted a more cautious approach than of their pension funds. In 2007, the that adopted for the 2004 valuation, with Regulations were further amended to require a strengthening of actuarial assumptions LGPS administering authorities to produce and regarding to increased life expectancy, publish a statement of their compliance with reduced real investment returns and gilt yield a set of best practice governance principles. expectations. The assumptions were also In 2008 those best practice principles were revised to allow for the introduction of the produced in draft and the Fund’s governance new LGPS scheme from 1 April 2008. arrangements were reviewed and revised to achieve compliance. The GCPS has been In the period between the two valuations the revised to reflect what is a material change in investment returns produced by the Fund policy and can be found in section 6 page 96. were pleasing, with a cumulative return over the 3 years of 52.1% (compared to the local General authority average of 49.3%).