Meeting documents

To consider the quarterly report of the Fund Administrator (attached). 

The Committee considered a report by the Pension Fund Administrator on the allocation of assets and overall performance of the Fund up to 31 December 2015.

The Independent Adviser presented Appendix 2 and provided a commentary on the investment outlook, and how it was likely to affect each asset class.  He said that markets had calmed since his report was written but the outlook was still not positive.  There had been a slowing in economic growth driven by China attempting to rebalance from investment to consumption, the continued slowdown in Emerging Markets (except India) and a fall back in world trade growth.  Central bankers had adjusted their strategies to reflect changing market conditions and the first increase in UK base rates was not now expected until 2017 because of a slowing in UK growth and wage growth, despite high levels of employment.

The Independent Adviser said that an ‘out’ vote in the forthcoming UK referendum on EU membership would lead to selling of gilts and sterling.  He said that he expected sterling to weaken against the dollar and the Euro, but the Euro was also likely to weaken against the dollar.

The Independent Adviser’s expectations for 2016 were that equities would outperform bonds, unless there were any further scares in markets, and that UK commercial property would outperform equities for the last year.  A member asked about the Fund’s exposure to retail property as he had seen a report predicting a very significant reduction in the demand for retail outlets.  The Finance Manager (Treasury and Investments) commented that details of all the Fund’s property investments by sector were included in Appendix 3 to the report from CBRE, later on the agenda.

The Fund Administrator highlighted that the Fund had outperformed its benchmark and the LGPS average over the 12 months, three years and five years to 31 December 2015.  He said that the Global Equity Managers transition had gone well and he thanked Legal & General Investment Management (LGIM), the transition manager, for their help with the process.  The Chief Treasury and Pensions Manager added that the transition involved total transactions of nearly £1 Billion, and that LGIM had been able to secure significantly greater savings on transition costs than if the transition had been managed in-house.

The Independent Adviser asked if the difference in performance by the two Private Equity Managers was due to their relative exposures to dollars and Euros.  The Chief Treasury and Pensions Manager replied that this was partly the case but that this would be investigated further and clarified.

The Chief Treasury and Pensions Manager informed members that representatives of Project Brunel had recently met with Treasury officials.  The feedback had been generally positive but the Treasury officials sought clarity on the proposed governance arrangement and on the level of commitment to invest in infrastructure.  He added that he and the Chairman had met with Sir Merrick Cockell, Chairman of the London Pension Fund Authority, who was trying to develop a ‘clearing house’ for infrastructure projects proposed by Government that may be suitable for LGPS investment.

The Committee noted that the Oxfordshire and Buckinghamshire funds had joined Project Brunel, increasing the size of the pool to approximately £23 Billion.  Although this was still slightly below the Government’s target of £25 Billion the feedback from the meeting with Treasury officials was that this should not be a concern.

The Chairman told members that the first meeting of the Shadow Oversight Board for Project Brunel was on 22 March 2016.  It was agreed that the Chairman and the Chief Treasury and Pensions Manager would attend this meeting and report back to members.

The Independent Adviser asked if cash balances accrued in the Fund presented an opportunity to equalise the allocation between UK and overseas equities.  The Chief Treasury and Pensions Manager replied that the recommendations for allocating surplus cash would achieve that.  It was agreed to change the target allocation for UK Equities from 27.5% to 26.25% and the target allocation for Overseas Equities from 25% to 26.25%.

Resolved

(i)         That the activity and overall performance of the Fund be noted.

(ii)        That the comments on future private equity allocations be noted.

(iii)       That the Fund invests £35 Million in UK equities.

(iv)       That the Fund invests £15 Million with Insight Investments, subject to resolving the outstanding issues.

(v)        That the Chairman represent the Fund on the Project Brunel Shadow Oversight Board.

(vi)       That the target allocations for UK Equities and Overseas Equities be equalised at 26.25% each.