Report & Accounts GREATER MANCHESTER 2016 PENSION FUND Administered by THIS PAGE LEFT INTENTIONALLY BLANK 2 Contents Chair’s Introduction 4 Management structure 6 Training & attendance 9 Top 20 equity holdings 11 Investment report 12 Myners principles 25 Financial performance report 26 Statement of accounts 31 Actuarial statement 69 Scheme administration 71 Employer contributions 77 The LGPS at a glance 95 Policy Statements - Funding Strategy Statement 99 - Governance Policy 117 - Governance Compliance Statement 121 - Core Belief Statement 127 - Statement of Investment Principles 129 - Communications Policy 137 - Pension Administration Strategy 141 Useful contacts 148 3 Chair’s introduction 2015/16 has been an exceptionally challenging year for Funding issues pensions in general and local authority pensions in particular. The triennial actuarial valuation of GMPF is currently taking Defined benefit pension schemes continue to face the place, with an effective date of 31 March 2016. Despite the challenges of the impact of monetary policy with the UK challenging economic conditions, we expect GMPF to remain base rate of interest remaining at 0.5% for a seventh year one of the best funded LGPS funds. This will be evidenced together with the continued impact of quantitative easing when, for the first time, all funds will be required to also report (QE) that has resulted in exceptionally low long term interest their valuation results using consistent actuarial assumptions. rates and negative nominal rates in some Government bond We will look to work with our employers to produce a markets. This results in a higher value being placed on pension contribution outcome that is fair to the employers and is promises earned. prudent for the management of GMPF. Our employers continue to face the impact of austerity measures and Government policies on public service delivery. Investment performance & management This has resulted in workforces shrinking, the number of arrangements employers increasing and a potential weakening of the Over 2015/16, GMPF's assets under management reduced covenant strength of some of GMPF’s employers. by £267 million to £17,325 million, reflecting the increasing This results in the maturity of the liabilities increasing across maturity of GMPF's liabilities and an investment return of the Fund with a wider range liability profiles amongst -0.8%. This is a disappointing return, and was below the local employers. authority average of 0.2%. In such challenging times, it is imperative that GMPF Over the last 15 years, GMPF’s return has been 6.5% per maintains its long term approach which has delivered annum, compared to the local authority average of 5.9% per successful outcomes over many years, whilst at the same time annum. It is this strong long term investment performance embracing the opportunities that arise to further enhance its that has supported the funding level. performance and resilience. Highlights of the year were the successful integration of During the year GMPF's key achievements include: £3 billion of assets in respect of Probation Service members into GMPF's Main Fund, the development of a trigger z Responding to the Government’s initiative to ‘pool’ LGPS process to capitalise on market opportunities as they arise, assets by jointly proposing a £35 billion pool that will seek and the further strengthening of investment management to lead on infrastructure investment and be recognised as arrangements by appointing three managers specialising in the lowest cost pool in the LGPS higher yielding debt to a framework. One of these managers z Creation of the first direct infrastructure investment vehicle has been selected to commence their role for GMPF in the in the LGPS coming year. z Completing the successful integration of the £3 billion of Membership changes assets received follwing GMPF becoming the sole provider During the year the number of employee members in GMPF of LGPS benefits to the Probation Service. reduced, but this reduction was more than made up by GMPF has responded to the requirement from Government increases in the number of deferred and pensioner members. that LGPS funds pool their investments at a scale of at least In total the membership increased over the year from 341,317 £25 billion by submitting a proposal to form the ‘Northern to 352,292 – some 10,975 extra pension accounts. As well as Pool’ with Merseyside Pension Fund and West Yorkshire being the largest LGPS fund in the country in terms of assets Pension Fund. The Northern Pool will consist of three of the under management, GMPF is also the largest in terms of largest LGPS Funds and total over £35 billion in assets. The members. funds share similar values in terms of providing high-quality, The number of contributing employers also grew during the low-cost pension delivery with an emphasis on simplicity year, up from 431 last year to 470 this year. and scale in the investment management arrangements. The Pool will seek to minimise any transitional costs and focus on the management of alternative assets such as infrastructure, property and private equity. The year saw the integration of £3 billion worth of assets, following GMPF becoming the sole provider of LGPS benefits to the Probation Service. 4 Local investment We continue to progress local investment opportunities with As part of the LGPS pooling discussions, it has recently the twin aims of commercial returns and supporting the area. been announced the West Yorkshire, Merseyside and Lancashire County Council pension funds will join GLIL, Some examples include a new development at First Street in which together with an additional commitment from Manchester with a development value of £70 million creating GMPF will result in total commitments to GLIL exceeding 170,000 sq ft of office space and providing local jobs. £1 billion. GMPF has also set up a programme of lending and providing equity capital to small and medium sized enterprises in the New home North West of England. The total commitment to these GMPF moved into a new office in Droylsden in September arrangements is over £50 million and it is made in partnership which has enabled all staff to be located in the same building with renowned financial institutions who, like GMPF, have a and will support our ongoing desire to improve effectiveness primary aim of generating commercial returns. and efficiency. The move went well and the new facilities will support GMPF’s future growth and success. Infrastructure Investment In April 2015, GMPF and the London Pensions Fund Authority Conclusion (LPFA) formed a joint venture to invest directly in infrastructure This has been another exceptional year to be managing a assets, with a focus on the UK. The joint venture is formed pension fund. The issues I have commented on show only a as a limited liability partnership (LLP) and has been named fraction of the complexity and challenge of offering a high- "The GMPF & LPFA Infrastructure LLP" (GLIL). GMPF and LPFA quality, affordable pension scheme to employers and their have each committed £250 million to GLIL. GLIL’s Investment employees. Committee is made up of officers from each funds’ investment We have long recognised the need to communicate with all of team. our stakeholders and and be able to respond to the challenges GLIL began investing in October 2015 and has completed that the future brings. We also need to balance the short and two transactions in the renewable energy sector, totalling long term needs of employers in a prudent way from a GMPF £210 million. The most recent of these transactions was the perspective. purchase from SSE plc of a 21.7% stake in Clyde wind farm for GMPF has a long term successful track record reflected in £150 million. Clyde is one of the largest onshore windfarms in its funding level and reputation. Our proposed pooling Europe, with 154 operational turbines, capable of generating arrangements are designed to ensure that this continues. 350 MW. SSE is in the process of constructing a further 54, more powerful turbines on the site, in which GLIL will have the Since the year end there has been a major change in the option to invest. management of GMPF, with the retirement of Peter Morris, the long standing Executive Director of Pensions. Peter has made an outstanding contribution to the success of GMPF and all of us at GMPF wish him a long and happy retirement. Sandra Stewart, who has played a significant part in the strategic management of the Fund for over 15 years is the new Executive Director for GMPF and leads a strong management team ready to take on the new challenges ahead. The GMPF Management Panel and I will continue to take decisions from a long term perspective to help maintain our success. I thank the members of the Panel, the Advisors, the Local Pensions Board, Investment Managers and not least our staff for their work over what has been another exceptional year. Councillor Kieran Quinn Chair, Pension Fund Management Panel 5 Management structure Tameside MBC became GMPF’s administering authority in 1987, and established a management structure which is still the backbone of the operation today. Pension Fund Management Panel The Management Panel carries out a similar role to the trustees of a pension scheme. They are the key decision makers for: z Investment management z Monitoring investment activity and performance z Overseeing administrative activities z Guidance to officers in exercising delegated powers. Each local authority is represented on the Management Panel, as is the Ministry of Justice. Pension Fund Advisory Panel The Pension Fund Advisory Panel works closely with the Management Panel, and advises them in all areas. Each local authority is represented on the Advisory Panel, and Members of the Management and Advisory Panels (left to there are six employee representatives right) Councillor Halliwell from Wigan MBC and nominated by the North West TUC.