Issue - meetings

Details were provided of the Fund’s investment performance for the first quarter of 2017/18. Additional detail was provided in an appended report from the Fund’s external advisers, AllenbridgeEpic. Baillie Gifford provided further commentary on its performance and view of the economic outlook.

The market value of the Fund ended the June quarter at £936.6m (even taking account of a £32.1m group transfer payment related to Bromley College) and had further increased to £973.1m at 31st August 2017. Compared to an average of 0.7% across the 60 LGPS funds in PIRC’s universe, the fund returned 2.7% for the first quarter against a benchmark of 0.4% and for the medium and long-term strongly returned at 26.8% for 2016/17 against a 24.6% benchmark - the highest return of the 60 Funds in PIRC’s LGPS universe. The Fund’s returns over three, five, and ten years were also the highest, and second highest over 20 years.

A Member noted that Baillie Gifford had slightly added to its holdings in sovereign debt, funded by reduced holdings in high yield bonds. Although sovereign debt would reduce returns, the change was made to reduce risk exposure against a potential rise in interest rates (sovereign returns providing protection against high yield bonds reacting to any interest rate change). 

It was suggested that returns of 12% would have been earned from passive investments in FTSE and that many returns had been driven by foreign exchange. Referring to the sale of £32.1m of Blackrock global equities for transfer of assets/ liabilities to the Local Pensions Partnership (Bromley College merger with Greenwich Community College), the Member had hoped that poorly performing Standard Life assets would have been sold. DGF assets had also performed badly and global equities held by Blackrock had improved. He stated the fund had forgone an estimated £2.2m capital appreciation in selling the global equities and felt this had been a wrong decision seemingly based on poor performance over a three-month period.

The decision to sell had been taken by the Director of Finance based on the advice from the Fund’s advisers, Allenbridge, which indicated the overweight position of global equities, the need to reduce the overall risk to the fund and their view that equity markets were near a peak, and in consultation with the Chairman and Vice-Chairman. The Member suggested it was not necessary to act on advice and in support another Member suggested the transfer should have been taken from DGF funds in the first instance. Reference was made in response to page 2 of the minutes of the previous meeting when Members were advised that much depended on the position of markets at the time of transfer as to which assets to sell to generate the required cash, and that it was best not to be too rigid in selling DGFs to fund the transfer. 

As the Fund portfolio had a relatively high level of equities, Allenbridge highlighted In their report advice from Mercer (the Fund’s Actuary) that equity markets were  ...  view the full minutes text for item 13