Venue: Offices of Insight Investment, 160 Queen Victoria Street, London, EC4V 4LA
Contact: Liz Eaton 01305 225113 - Email: liz.eaton@dorsetcouncil.gov.uk
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To confirm and sign the minutes of the meeting held on 12 September 2019. Minutes: The minutes of the meeting held on 12 September 2019 were confirmed and signed. |
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Declarations of Interest To receive any declarations of interest. Minutes: No declarations of disclosable pecuniary interests were made at the meeting. |
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Public Participation To receive questions or statements on the business of the
committee from town and parish councils and members of the public. Minutes: There were no questions or statements from Town and Parish Councils for members of the public at the meeting. |
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Urgent items To consider any items of business which the Chairman has had
prior notification and considers to be urgent pursuant to section 100B (4) b)
of the Local Government Act 1972. The reason for the urgency shall be recorded
in the minutes. Minutes: There were no urgent items. |
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Presentation from Investec Asset Management To receive a presentation from Investec Asset Management, one of the pension fund’s global equities managers. Minutes: The Committee
received a presentation from Christine Baalham, Jonathan Parker and Steve Lee, Investec Asset Management, one of the pension fund’s global equities
managers. Investec summarised
their approach as looking for high quality, attractively valued companies with
improving operation performance that were receiving increasing investor attention. This approach had delivered a good long term track record but they acknowledged that
performance for Dorset since inception in December 2015 had not been good
enough, and apologised for that. The main reasons
for underperformance were high positions in UK domestic based stocks that were
hit hard by falls in sterling, reduced exposure to commodities prior to the
fiscal stimulus in the US following the election of President Trump, and poor
stock selection in the pharmaceutical sector due to shortcomings with their
analysis. The Independent
Adviser believed that the reason for the underperformance was more
fundamental. Investment approaches with
a strong ‘value’ bias, such as Investec’s, had underperformed investment
approaches with a strong ‘growth’ bias. Investec agreed
that conditions had been difficult for value styles, but
believed they should have been able to weather the storm because of the other
factors they considered alongside value.
They looked for market signals such as share price trends and earnings
revisions to avoid ‘value traps’. Resolution of the US/China trade dispute,
leading to the removal of tariffs, would lead to a strong improvement in
returns. All investment
styles had periods when they did not work, but Investec believed that
ultimately the fundamentals of companies would be rewarded, and that markets
could move quickly to reward value. The
Chairman noted that it may be many years before such a turning point was
reached. The Vice-Chairman
asked what Investec were doing to review their approach and did they believe it
was it still fit for purpose. Investec
were reviewing whether they were capturing value correctly, and therefore
identifying the right companies in the right sectors. In sectors where shortcoming in their analysis
had been identified, they had made improvements, including personnel changes. Investec saw
climate change as a material financial risk for energy companies as they are at
risk of holding stranded assets and were exposed to decommissioning costs. Assessment of such risks
forms part of their financial analysis.
They also looked for engagement with companies. The Chairman
thanked Investec for their presentation. Noted |
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Annual Governance Compliance Report PDF 146 KB To receive the annual report from Peter Scales, the Pension Fund’s Independent Governance Adviser. Minutes: The Committee
received the annual update on governance compliance from the
Independent Governance Adviser. He
was satisfied that good standards of governance, including the role of the
Local Pension Board, had been maintained since his last report in November
2018. In his opinion the
pension fund’s annual report for 2018/19 was compliant with the newly revised
CIPFA guidance, and he described it as one of the best he had reviewed this
year. Investment pooling
had given rise to a number of governance
concerns. This included restrictions on
the access of pension fund committees to the investment pools’ underlying
managers. Consultation on revised
guidance on the governance of investment pooling from the Ministry of Housing,
Communities and Local Government (MHCLG) was expected in early 2020. The LGPS Scheme
Advisory Board (SAB) had issued guidance in relation to responsible
investing. Cllr Beesley had recently
been appointed to the SAB, and he confirmed this topic was very high on SAB’s agenda. SAB were also considering the results of the
Hymans Robertson’s report on good governance which included proposals to ‘raise
the bar’ for the training requirements of members of pension fund committees. The Independent
Governance Adviser confirmed that the pension fund’s actuary was a regulatory
position, similar to that of an auditor, and was not
an advisory position. The actuary was charged with setting employer
contribution rates, and with keeping those rates as constant as possible. However, there should be an opportunity for
the Committee to discuss the initial results, underlying assumptions and
sensitivities of a valuation with the actuary prior to the finalisation of
rates. It was suggested that at the next
valuation an additional meeting of the Committee be held to discuss the initial
results. Resolved That at the next
actuarial valuation an additional meeting of the Committee be held to discuss
the initial results, if the results are not available for the September
meeting. |
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Pensions Administration PDF 128 KB To consider the quarterly report of the Fund Administrator on pension fund administration. Additional documents:
Minutes: The Committee
considered a report from officers on operational and administration matters
relating to the Fund. The CIPFA
benchmarking results for 2019 evidenced a high standard of service, good
quality data and cost efficiency for the administration of the pension fund
compared to its comparator group. The Guaranteed
Minimum Provision (GMP) and contracting out reconciliation project was drawing
to a close, and the pension fund would then need to commence the process of
rectification. It was proposed that for
scheme members who had been underpaid, future pensions would be corrected and
arrears would be paid. For scheme
members who had been overpaid, future pensions would be corrected but there
would be no recovery of historic overpayments.
The changes would require careful communication to the individuals
affected. The Pensions
Administration Strategy (PAS) had been reviewed and updated. Financial penalties could be imposed on
scheme employers as a last resort. Where
penalties have been applied they had led to an improvement in performance. Administering
authorities in the LGPS had an obligation to provide access to an in-house
Additional Voluntary Contribution (AVC) arrangement for their scheme
members. It was agreed that a review of
the current arrangements was required. Performance against
Key Performance Indicators (KPIs) was generally good. The two exceptions both related to ‘transfers
out’. It was explained that at times of high
demand on the service, performance against these two KPIs was allowed to slip
temporarily so that activities that impacted scheme members directly were
prioritised. Resolved 1. That the proposed approach to Guaranteed Minimum
Provision (GMP) rectification be taken. 2. That the revised Pensions Administration
Strategy (PAS) be approved. 3. That there is a review of the current in-house AVC arrangements. |
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Independent Adviser's Report PDF 213 KB To receive the quarterly report of the Independent Adviser on the investment outlook. Minutes: The Committee
considered a report by the Independent Adviser that gave his views on the
economic background to the pension fund’s investments, the outlook for
different asset classes and the key risks for markets. Markets had seen a
recovery over the quarter, driven by the relaxation of monetary policy by
central banks. The US was unlikely to go
into a recession and there was greater optimism about a US-China trade deal. Growth in the UK
and Europe was more sluggish. There was
uncertainty over Brexit and the UK general election, and markets were sceptical
that a UK-EU trade deal could be concluded by December 2020. UK commercial property had seen a slight fall
in capital values. There was a
challenge to the pension fund’s inflation hedging arrangements from the
possibility of the Retail Price Index (RPI) being replaced by the Consumer
Price Index including housing costs (CPIH).
This had an adverse impact on the prices of assets with income streams
linked to RPI, such as index linked government bonds. The government was expected to launch a
consultation on the proposed changes in 2020.
Officers and the Independent Adviser were asked to produce a summary of
risk mitigation options for consideration at the next meeting of the Committee. The strategic asset
allocation would need to be reviewed as a consequence of
the triennial actuarial valuation, and it was agreed that investment
consultants should be appointed to assist with this. Significant changes were not expected,
although the Liability Driven Investment (LDI) allocation would need to be
reviewed in light of the potential changes to
inflation indexation measures. It was
confirmed that asset allocation remained the responsibility of the Committee
and had not transferred to Brunel. Resolved 1. That
officers and the Independent Adviser provide a summary of risk mitigation
options relating to the possible change from RPI to CPIH for the next meeting
of the Committee on 12 March 2020. 2. That
investment consultants be appointed to assist with the review of the pension
fund’s strategic asset allocation. |
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Fund Administrator's Report PDF 185 KB To consider the quarterly report of the Fund Administrator. This includes an update on the funding position, the value and performance of investments, the cash position and other topical issues. Additional documents:
Minutes: The Committee
considered a report by the Fund Administrator on the pension fund’s funding
position, valuation, performance and asset allocation as at 30 September 2019. Barnett Waddingham,
the pension fund’s actuary, had completed their triennial review as at 31 March
2019. The funding level had improved
from 83% at the last triennial valuation, as at 31 March 2016, to 92%. The value of the
fund’s investments at 30 September 2019 was just over £3.1 billion. The return on investments for the financial
year to 30 September 2019 was 5.1%, compared to the combined benchmark return
of 4.8%. The return on investments for
the last 12 months was 5.2%, compared to the combined benchmark return of 5.9%. The presentation
from Investec had not given the Committee sufficient
confidence that under performance would be rectified prior to the planned
transition to the Brunel active core global equities portfolio expected late
2020. It was therefore agreed that the
mandate should be terminated. Assets
would initially transfer to the Brunel passive global equities portfolio, with
a further onward transfer to the Brunel active core global equities portfolio
to be considered at a later date. Resolved That the mandate with Investec be terminated, with assets transferred to the Brunel passive global equities portfolio as soon as practical. |
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Investment Pooling Progress Report PDF 108 KB To consider a report by the Fund Administrator on progress to date on the investment pooling project. Additional documents:
Minutes: The Committee
considered a report by the Fund Administrator on the progress to date in the implementation
of the Full Business Case (FBC) for the Brunel Pension Partnership, as approved
by the Committee on 9 January 2017. As at 30 September
2019, investments valued at approximately £960m had transferred to portfolios
under Brunel’s management. This
represented just over 30% of the pension fund’ total assets valued at
£3.1bn. A further £125m was planned to
transition before the end of November 2019 to Brunel’s Global High Alpha
Equities portfolio. This would take
assets under Brunel’s management to approximately £1.1bn. Cllr Beesley, the
pension fund’s representative on the Brunel oversight board, reported that the
board were reviewing the level of scrutiny and challenge of Brunel’s
activities, especially in relation to responsible investing and other
environmental, social and governance matters. There was an update
on progress in appointing a new Chief Executive Officer (CEO) for Brunel,
replacing Dawn Turner, who left the company at the end of September 2019. It was suggested that the new CEO, when
appointed, the company chairperson and/or the shareholder non-executive
director be invited to a meeting of the Committee in 2020. Resolved That the new CEO, chairperson and/or the shareholder non-executive director be invited to a meeting of the Committee in 2020. |
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Date of Future Meeting To confirm the date of the next meeting of the Committee: 12 March 2020 County Hall Minutes: Resolved That meetings be held on the following dates: 12 March 2020 County Hall, Dorchester. |
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Exempt Business To move the exclusion of the press and the public for the following item in view of the likely disclosure of exempt information within the meaning of Paragraph 3 of Schedule 12A to the Local Government Act 1972 (as amended). The public and the press will be asked to leave the meeting whilst the item of business is considered. Minutes: Resolved That the Press and the Public be excluded for the following item(s) in view of the likely disclosure of exempt information within the meaning of Paragraph 3 of Part 1 of Schedule 12A to the Local Government Act 1972 (as amended). |
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Request from Employer to Change their Guarantee Provision To consider an exempt report by the Pension Fund Administrator – to follow. Minutes: The Committee
considered a request from an employer to change their guarantee provision
against any future unmet liabilities and/or costs from a bond to an alternative
arrangement. Resolved That officers discuss and reach agreement with the employer for a suitable alternative financial guarantee to a bond. |