Meeting documents

To consider a report by the Chief Financial Officer.  This includes Strategic Fund Allocation for the period ending 30 September 2018, cash flow and performance analysis and other topical issues.

The Committee considered a report by the Pension Fund Administrator on, and the asset allocation, valuation and performance of the Fund’s assets up to 30 September 2018, and the latest indicative funding position.  The value of the Fund’s assets had briefly exceeded £3 billion at the  end of September 2018, but the subsequent market correction meant that this had fallen back to £2.9 billion by the end of October 2018.

The funding update showed an improvement in the funding position from 83.2% at the last triennial valuation as at 31 March 2016 to an estimated 92.91% as at 30 September 2018.  This was due to higher than expected increases in asset values in the intervening period. 

The Independent Advisor noted the improved funding position for the Fund and the LGPS more widely. If the funding position in a corporate scheme exceeded 100% then that scheme would look to de-risk.  He felt there needed to be more discussion and guidance about what the ‘end-game’ should be for LGPS funds.

The total return on investments was slightly ahead of the combined benchmark for the quarter, and broadly in line with the benchmark over all longer periods reported. Returns in the quarter were driven by gains in equities in overseas developed markets and private equities, with UK and emerging markets flat or negative. 

The Fund was overweight in listed equities with 50.1% of assets by value at the end of September 2018 compared to the target of 45%.  Officers would continue to sell equities back towards target.  This would lead to higher cash balances in the short term until there were opportunities to invest in the more illiquid asset classes where the Fund was below target, namely property, private equity and infrastructure.

Performance by asset class and by manager was discussed.  The underperformance since inception of Investec, one of the Fund’s global equities managers, was highlighted.  The performance over the last 12 months of JP Morgan, the Fund’s emerging markets equities manager was also a concern. The Independent Advisor suggested that an additional comparison of Smart Beta performance against a passive Global Equities mandate would be useful.

The performance of CBRE was below benchmark for the quarter and year to date due to a change in treatment by the valuers of the ‘old’ Cambridge Science Park holdings.  It was anticipated that this would be offset by an expected uplift in valuation of the ‘new’ Cambridge Science Park holdings when the development was complete.  The Chairman highlighted that this investment in a development project was an exception to the Fund’s general approach to property investment.

The Independent Adviser said that there were two ways of measuring the performance of CQS, the Fund’s Multi Asset Credit (MAC) manager.  Their performance was below target but better than the universe of their competitors. 

Re-negotiations with Insight Investments, the Fund’s Liability Driven Investment (LDI) manager, had resulted in a reduction in base fees, an improved performance fee mechanism and an updated benchmark. Significant improvements to reporting had also been made but some further changes were sought.  A training session for the Committee with Insight would be arranged for 2019.

Officers agreed to amend the performance by asset class section of the report to include the value of Assets Under Management (AUM) for each investment manager.

The Chairman thanked officers for their organisation of the training days.

Resolved

1. That the activity and overall performance of the Fund be noted.

2. That the progress in implementing the new strategic asset allocation be noted.

3. That the returns from the Smart Beta portfolio be compared to investment in a passive global equities mandate.

4. That future reports show the value of Assets Under Management (AUM) for each investment manager in the performance by asset class section.