Meeting documents

To elect a Chairman for the year 2017/18.

That John Beesley be elected Chairman for the year 2017/18.

To appoint a Vice-Chairman for year 2017/18.

That Peter Wharf be appointed Vice-Chairman for the year 2017/18.

Apologies for absence were received from Colin Jamieson (Dorset County Council and May Haines (Borough of Poole).

There were no declarations by members of disclosable pecuniary interests under the Code of Conduct.

To exercise all functions of the Council as administering authority under the Local Government Superannuation Act and Regulations and deal with all matters relating thereto.

In broader terms this means that the Committee has responsibility for:

·         Determining the overall investment strategy and strategic asset allocation of the Fund, and in doing so taking proper professional advice

·         Overseeing the preparation of and regularly reviewing the Fund’s key policy documents including the Statement of Investment Principles (SIP), Funding Strategy Statement, Governance Policy and Compliance Statement, Business Plan, Communications Strategy

·         Appointing and reviewing the performance of all Fund Managers and other professional service providers

·         Reviewing all aspects of performance across the Pension Fund service

·         Deciding upon requests for admission of qualifying organisations wishing to join the Fund

·         Deciding upon key pension policy and discretions that are the responsibility of the    Administering Authority

·         Ensuring that at all times that these responsibilities are discharged in the best interests of the Fund.

·         Making appointments to the Pension Board of the Dorset County Pension Fund.

The Terms of Reference for the Committee were received by members.

The Chairman welcomed the new members to the Committee and asked for letters of

thanks be written to all former members who had recently stood down from the

Committee - Mike Byatt, Ronald Coatsworth, Trevor Jones and Mike Lovell.

The Chairman reported that the Interim Chief Treasury and Pensions Manager would

be leaving Dorset County Council on 30 June 2017 to take up a post with Tameside

Council and that this was, therefore, his final meeting.  The Chairman thanked the

Interim Chief Treasury and Pensions Manager for his advice and guidance, and his

contribution to the Dorset County Pension Fund.

To confirm the minutes of the meeting of the Pension Fund Committee held on 1 March 2017.

The minutes of the meeting held on 1 March 2017 were confirmed and signed.

Minute 14 Review of 2016 Fund Valuation Process

The Interim Chief Treasury and Pensions Manager reported that the Fund’s actuary, Barnett Waddingham, would produce a plan for the 2019 valuation and this would be on the agenda for the meeting of the Committee on 13 September 2017.

Minute 19 Manager Reports

The Interim Chief Treasury and Pensions Manager reported that officers and the Independent Adviser had met with Nigel Thomas, the AXA Framlington Fund’s manager, on 18 May 2017, and that the Chairman had also met separately with Mr Thomas on 20 June 2017, where reassurances on the robustness of AXA’s approach over the long term had been received.  AXA had also offered to host the Committee’s November 2017 meeting and training sessions in London, which would give all members the opportunity to hear from and ask questions to the fund manager directly.

(a)   Public Speaking

(b)   Petitions

To consider a report by the Fund Administrator on the progress to date on the Brunel Pensions Partnership (attached).

The Committee considered a report by the Fund Administrator on the progress to

date in implementing the Full Business Case (FBC) for the Brunel Pension

Partnership (BPP), as approved by the Committee at its meeting on 9 January 2017.  

He informed members that Dorset County Council, as administering authority,

had approved the processes to establish the company and implement the new

governance arrangements.

The Fund Administrator believed this was the largest ever change to the

management arrangements of the Fund, and a huge amount of work had been

completed to date and was still needed to implement the changes successfully.  He

informed members that there were monthly meetings of the Shadow Oversight Board

(SOB), attended by representatives of all ten pension fund committees or equivalent

and chaired by the Dorset Fund Chairman, regular meetings of the chief financial and

legal officers for each fund, the Finance and Legal Assurance Group (FLAG), and the

investment officers of each fund, the Client Operating Group (COG) were held.

The Fund Administrator informed members that Denise La Gal had been

appointed as chair of Brunel Pension Partnership Ltd.  The Chairman told members

that the three Non-Executive Directors (NEDs) had also been appointed – Steve

Tyson (the shareholder representative NED), Mike Clark and Frederique

Pierre-Pierre.  The Fund Administrator confirmed that the recruitment process for the

executive posts had begun, and that Dawn Turner, Environment Agency, had been

appointed Interim Managing Director.  He added that there had been significant

discussions at SOB and FLAG on reward packages, with salaries capped and no

bonuses for executives.

Members were informed members that officers were close to finalising the evaluation

of the responses to the Invitation to Tender (ITT) to appoint an administrator and

custodian for BPP Ltd and the underlying funds.

It was noted that from July 2017 the Shadow Oversight Board (SOB) would become

the Oversight Board (OB).  The Chairman was mindful not to overburden members

with too much detail on project progress but asked that members continued to raise

any queries or concerns with him, as the Fund’s representative.  He added

that SOB had provided a high level of scrutiny and challenge on all matters,

particularly future governance arrangements and cost control.  He felt that the

funds had worked well together, with decisions reached so far by consensus not

majority, including some very difficult issues.  He also highlighted the comprehensive

 legal and financial advice and support provided to the project by Osborne Clarke and

PwC respectively.

A member asked about the management of transition costs.  The Chairman

replied that to date there had been set-up and development costs, but as yet no

transition costs.  Once officers had been recruited to BPP Ltd detailed plans for

transition would be developed and implemented, with cost control a major factor.

The Fund Administrator noted that transition costs would also be an important consideration in implementing any changes to the strategic allocation in advance of BPP.

The Vice-Chairman said that it would be useful to receive a regular, short and  ...  view the full minutes text for item 32.

To consider an admission agreement request for Jurassic Coast Trust to become an admitted body of the scheme (attached).

The Committee received a report by the Pension Fund Administrator that requested

the approval of an application for admission body status from the Jurassic Coast

Trust (JCT).  The Interim Chief Treasury and Pensions Manager explained that JCT

had been ‘spun out’ of Dorset County Council (DCC) in order to gain access to

funding sources not available directly to local authorities.  Four scheme members

would transfer fully funded to the new organisation under TUPE regulations, with the

deficit remaining with DCC, who would also act as guarantor for future liabilities.

The Vice-Chairman asked if there could be any unforeseen consequences for the

protection to the Fund provided by this guarantee should DCC cease to exist under

Local Government Reorganisation (LGR).  The Fund Administrator replied that this

was part of a wider issue for LGR, but the expectation would be that any guarantees

from DCC or other employers ceasing to exist would novate to the new

organisations, as would be the case with other existing contracts.

Resolved

That Dorset County Council enters into an admission agreement with the Jurassic Coast Trust who will become an Admitted Body employer within the Local Government Pension Scheme (LGPS).

To consider the report of the Chief Financial Officer (attached).  This includes Strategic Fund Allocation for the period 31 March 2017, cash flow and performance analysis and other topical issues.  As part of this item the Committee will receive the report from the Independent Adviser on investment outlook and asset allocation (Appendix 2 refers), the draft annual pension fund accounts for 2016-17 (Appendix 4) and the updated Funding Strategy Statement (Appendix 5).

The Committee considered a report by the Pension Fund Administrator on the

allocation of assets and overall performance of the Fund up to 31 March 2017.

The Independent Adviser presented his report at Appendix 1 and provided a commentary on the investment outlook, and how it was likely to affect each asset class. He noted that although his report was written before the results of the UK general election were known not much had changed since in markets, despite greater political uncertainty.

The Independent Adviser reported that signs of a wider global recovery now looked more positive, with signs of sustainable growth across Europe, not just Germany, and recovery in Emerging Markets.  However, Japan’s economy was still ‘stuttering’, and China’s transition to a consumer led economy remained a significant risk.  UK growth was expected to be approximately 1.5% for the next two years.

Equity markets had a very good year, even allowing for currency movements, and volatility had dampened down.  However, in the US there were now doubts about the deliverability of some of the President’s plans, and the fiscal boost previously anticipated by markets looked less likely.  He believed that the key risk was that the US Federal Reserve increased interest rates more quickly than markets expected, which could stop growth and lead to a sell-off of assets.

The Independent Adviser reported that property was the market most negatively affected by the result of the EU membership referendum but values had now largely recovered.  He informed members that expectations were for gilt yields to rise, given their continuing very low levels, but as yet this had not happened.

It was felt that there was still a high level of uncertainty about the outcome of the Brexit process.  A member asked the Independent Adviser about the reaction of markets to these political uncertainties.  The Independent Adviser replied that, whilst the City’s preference would be for the UK to remain in the single European market, as that now seemed unlikely, the second best outcome would be continued access to the market, with a long transition period before any new arrangements were implemented.  He added that generally tariffs on manufactured goods were not now particularly high but the concern was that there could be restrictions on access for UK services to the European market.  He also highlighted that trade agreements could take considerable time to negotiate.

A member raised his concerns that he felt current equity prices were not supported by fundamentals, and he highlighted that it had been a long time since the last significant market correction.  The Independent Adviser replied that, although most of the gains in the FTSE 100 over the last year had been driven by sterling’s depreciation, the member’s concerns could be warranted to some extent in UK and US markets, but less so in other markets, such as Europe and Emerging Markets, where valuations were supported by signs of sustainable economic growth.

The Fund Administrator highlighted the very strong absolute performance of the Fund’s assets over  ...  view the full minutes text for item 34.

To receive the following reports (attached):

(a)          UK Equity Report

(b)          Global Equities

(c)          Royal London Asset Management – Corporate Bonds

(d)          CBRE Global Investors – Property

(e)          Insight Investment – Liability Hedging

(a) UK Equity Report

The Committee considered a report by the Finance Manager (Treasury and

Pensions) which summarised the performance of the internally managed UK equities

passive portfolio, the AXA Framlington Fund and the Schroders Small Cap Fund.

The Finance Manager (Treasury and Pensions) highlighted that the return from the internally managed passive portfolio was inside the agreed tolerance of +/- 0.5% for the quarter, and for the 12 months, 3 years and 5 years ending 31 March 2017. 

The performance of AXA was also highlighted, as the recovery from the poor absolute and relative performance for the quarter ending 30 June 2016 had been minimal in the financial year to 31 March 2017.  Further to the discussions earlier in the meeting under matters arising, the Finance Manager (Treasury and Pensions) added that AXA’s bias towards mid-cap stocks should complement the internally managed portfolio’s inherent bias towards the largest companies in the FTSE 100. 

Noted

(b) Global Equities Report

The Committee considered a report by the Finance Manager (Treasury and

Pensions) which summarised the performance of the three Global Equities managers

Allianz, Investec and Wellington.  He highlighted that all three managers had

produced very high absolute returns but Allianz and Investec were still below their

benchmark for the 12 months to 31 March 2017.  The Independent Adviser

noted that the more traditional approach of Wellington appeared to have performed

better to date than the factor based approaches of Allianz and Investec.

Noted

(c) Royal London Asset Management (rlam)

The Committee considered a report from Royal London Asset Management (rlam) on the Corporate Bond portfolio.  The Finance Manager (Treasury and Pensions) highlighted the good absolute and relative performance over the quarter, one, three and five year periods, but said that relative performance since inception was still marginally negative, due to the banking crisis which occurred soon after inception.

Noted

(d) CBRE Global Investors

The Committee considered a report from CBRE Global Investors, the Fund’s

Property Manager.  The Interim Chief Treasury and Pensions Manager highlighted

that performance was slightly below benchmark for the quarter but above benchmark

for one, three and five years to 31 March 2017. He highlighted the low

vacancy rate of 2.5% which was considered a key driver of performance.  He

informed members that the development of Cambridge Science Park had ‘broken

ground’ and that the purchase of Waterloo Plaza was imminent.

The Vice-Chairman raised a concern that the average lease length of the Fund’s

holdings were higher than the benchmark.  The Interim Chief Treasury and Pensions

Manager replied that CBRE actively looked to renegotiate leases as they approached

maturity, but he highlighted that a key issue to be addressed was the high number of

leases that expired in 2020.

Noted

(e) Insight Investment

The Committee considered a report from Insight Investment, who had the mandate

for the liability matching strategy.  The Interim Chief Treasury and Pensions Manager

highlighted that the valuation (after additional investment) had increased by

approximately 50% over the financial year but  ...  view the full minutes text for item 35.

To confirm the dates for the meeting of the Committee in 2016:-

13 September            -            County Hall, Dorchester (Please note change of date)

            23/24 November         -           London (venue TBC)

Resolved

That meetings be held on the following dates:

13 September 2017                County Hall, Dorchester

22/23 November 2017            London (to be confirmed0.

To answer any questions received in writing by the Chief Executive by not later than 10.00 am on 16 June 2017.

No questions were asked by members under Standing Order 20 (2).

Exclusion of the Public

Resolved

That under Section 100A(4) of the Local Government Act 1972, the public be

excluded from the meeting for the business specified in minute 38 because it was

likely that if members of the public were present there would be disclosure to them of

exempt information as defined in Paragraph 3 of Part 1 of Schedule 12A to the Act

and the public interest in withholding the information outweighs the public interest in

disclosing that information.

To consider an exempt report by the Pension Fund Administrator and Mercer – NOT FOR PUBLICATON.

Steve Turner and Nick Self, from investment consultant Mercer, presented their

review of the Fund’s strategic allocation to asset classes following the results of the

2016 actuarial valuation.  The Independent Adviser and the Fund Administrator also

gave their views on the proposed changes to the existing asset allocation and

members asked a number of questions.  The Independent Adviser and Fund

Administrator agreed to produce a modified proposal based on the discussions which

would be modelled by Mercer to assess the impact on risk and expected return. The

Fund Administrator added that the implementation of any changes would need to

take into consideration the Brunel Pension Partnership (BPP) and transition costs. 

Resolved

That an additional meeting of the Committee be held to reach a final agreement on any changes to the strategic allocation.