Agenda and minutes

Apologies had been received on behalf of Cllr Richard Williams.

There were no declarations.

The minutes were agreed and Members received an update on current matters.

At the Local Authority Pension Fund (LAPF) Investments Awards 2017,

L B Bromley was judged overall winner for LGPS Investment Performance of the Year and was also in the final shortlist for LGPS Fund of the Year (under £2.5 billion).

Reference was also made to a letter at the end of August from the Minister for Local Government concerning the pooling of funds. Some pools had not yet been established and the Government was keen to see more progress in this area. The Government remained committed to the change following the June election and it was necessary for funds to invest in pools with minimum exception. Future procurement would be undertaken through the pool and the expectation from government is that there would be savings on fees and greater opportunities for infrastructure investment.

On procuring Fund Managers for Property and Multi Asset Income Funds (MAIF), seven potential Managers for MAIF were on a long list along with six potential Managers for Property. It was anticipated that the list for both would be shortened nearer to the Sub-Committee’s November and December meetings for Manager selection.

The Chairman had also written to the Minister for Local Government on

16^th August 2017 suggesting proposals on reducing the level of liability falling to Council Taxpayers for the LGPS namely:

·  Reducing the level of employer contributions to the scheme with a corresponding increase in employee contributions (providing savings to compensate for the impact of ongoing austerity and continued reductions in government funding);

·  Addressing problems caused by local providers being unwilling to tender for services due to LGPS pension liabilities – a concern which would be enhanced should the LGPS be expanded under “Fair Deal” proposals; and

·  Government funding a proposed new burden of public service scheme members receiving the full Guaranteed Minimum Pension (GMP) indexation (currently estimated to add an estimated 0.5% of costs to the Council’s pension liabilities, equating to approximately £5.6m for

L B Bromley). 

The Minister‘s response was considered positive referring to the scheme currently being subject to an actuarial valuation by the Government Actuary Department (GAD) to assess the health of the scheme as at 1^st April 2016. A final report would be due in spring 2018. A parallel valuation to be carried out by the Scheme Advisory Board (SAB) would check that overall contributions and their split between employers and employees are fair. On completion of the processes, the Government would look carefully at the evidence and any recommendations made by GAD and/or SAB and this would inform the need for any changes. In relation to Fair Deal, the Government was developing a further consultation which would explore potential alternatives to implementing Fair Deal within the LGPS including consideration of how the Government can most effectively enable Councils to outsource work to external providers within the Fair Deal framework. For the GMP indexation, the Government was currently considering responses to consultation on how public  ...  view the full minutes text for item 10.

In accordance with the Council’s Constitution, questions to this Sub-Committee must be received in writing four working days before the date of the meeting. Therefore please ensure that questions are received by the Democratic Services Team by 5pm on Wednesday 20^th September 2017.

There were no questions.

Representatives from the London CIV will be in attendance for this item.

Representatives from the London Collective Investment Vehicle (LCIV) - Hugh Grover (Chief Executive) and Larissa Benbow (Head of Fixed Income) - attended for the item to update Members on LCIV progress.

The LCIV aimed to be the investment vehicle of choice for Local Authority Pension Funds through collaboration and performance. The LCIV was launched in December 2015 as a fully authorised and regulated investment management company set up by local government for local government. Founding members comprised London boroughs and the City of London Corporation.

The LCIV was authorised to operate an Authorised Contractual Scheme Fund (UK version of a Tax Transparent Fund) and the LCIV would be building the fund over the next few years, aiming to grow assets under management to £25 billion by 2020.

Members were advised that all 32 London Boroughs (including City of London) were now signed-up to the CIV (32 as L B Richmond and L B Wandsworth had merged their funds). The LCIV provided a range of Investment Funds comprising four multi-asset/total return funds, four global equity funds and one UK equity fund. On Global Equity Procurement, three sub funds had been launched with additional sub-funds also recently launched. Additionally, options were being assessed for a further two or three sub funds for launch in December 2017 (dependent on borough demand). 

In regard to Fixed Income the LCIV had assembled a blend of products and were meeting with boroughs to assess their appetite for fixed income and funds to recommend. Research was also being developed and work undertaken with just over 1500 fixed income funds. Two fixed income sub-funds were due to be opened by March 2018 or sooner. For 2018/19, it was intended to open four fixed income sub-funds and one property sub-fund with seven sub-funds (including infrastructure and alternatives) intended to be opened in 2019/20.  Fund options under consideration were:

·  Multi-Asset Income (2 to 4%, 4 to 6%, 6 to 8% expected returns)

·  Multi-Asset Credit (4 to 6% expected returns)

·  Private Debt (4 to 6%, 6 to 8% expected returns)

·  Buy and Maintain (2 to 4% expected returns)

With a range of products to be opened it was for L B Bromley to choose whether to invest in the LCIV products. Decisions on Asset Allocation and Investment Strategy remain local with L B Bromley free to decide on any sub-funds on the CIV platform for investment. The CIV decides on sub-fund manager selection and removal.

An Annual Service Charge of £25k would be made per annum and a Development Funding Charge of £75k p.a. introduced this year was estimated to reduce to £10k p.a. by 2021/22. Reference was also made in the Presentation to Management Fees on Assets Under Management (AUM) on the CIV platform; for Passive Management Fees, the CIV had negotiated rates on AUM (outside of the LCIV Pool). A particular benefit from investing through the LCIV concerned the level of fee savings that could be offered.

Under Stewardship, reference was made to the requirement for Funds to have  ...  view the full minutes text for item 12.

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.

Report FSD17079

Members received the annual report and accounts of the L B Bromley Pension Fund for year ending 31^st March 2017 which included the following documents requiring the Sub-Committee’s approval:

·  Governance Policy Statement

·  Funding Strategy Statement

·  Investment Strategy Statement

·  Communications Policy Statement.

The annual report had been audited by the Fund’s external auditor, KPMG LLP and the Council would publish the report on its website by 1^st December 2017.

The Bromley Pension Fund had total net assets of £913.4m at 31^st March 2017 (£748.0m at 31^st March 2016). The Fund outperformed against its benchmark by 2.2% over the year (+26.8% against a benchmark return of +24.6%). Performance compared to the 60 LGPS funds in the PIRC local authority universe (average return of +20.2%) was excellent, ranking in the first percentile for the year. Rankings over the medium and long term were also excellent – first over three, five and ten years, and second over 20 years to March 2017.

Total fund membership reduced from 16,605 at 31^st March 2016 to 16,404 at 31^st March 2017 when it comprised 6,076 employees, 5,070 pensioners and 5,258 deferred members. Payments into the Fund from contributions (employee and employer), transfers in and investment income totalled £44.9m in 2016/17 (£42.1m in 2015/16) and payments from the Fund for pensions, lump sums, transfers out and administration totalled £71.0m (£35.1m in 2015/16). The increase in value of payments made during 2016/17 was mainly the result of two group transfers out.

The accounts had been audited by KPMG and were made available in draft form on the Council’s website before the end of June 2017.

It was highlighted to officers that Brian Toms had been recorded twice at page 5 of the Annual Report.

RESOLVED that:

(1)  the Pension Fund Annual Report 2016/17 be noted and approved;

(2)  the Governance Policy Statement and Communications Policy Statement as outlined at paragraph 3.2 of Report FSD17079 and in the Annual Report be approved;

(3)  the changes to the Funding Strategy Statement and Investment Strategy Statement as set out at paragraph 3.3 of Report FSD17079 be approved; and

(4)  arrangements be made to ensure publication of the Annual Report by the statutory deadline of 1^st December 2017.

Report FSD17068

In view of the contract with Mercer Ltd for actuarial services expiring on

31^st March 2018 (the contract having been extended by the Director of Finance under delegated authority), it was proposed to re-tender the contract for a six-year period, with an option to extend for a further three years (covering triennial valuations in 2019 and 2022 and 2025 should the optional extension be exercised). The total value of a potential nine year contract was estimated at approximately £1,080k (based on estimated activity levels). At its meeting on 12^th September 2017 the General Purposes and Licensing Committee considered the proposals and agreed to delegate authority to the Sub-Committee to:

·  agree that the contract for the Council’s actuary be tendered, and the tender process to be followed;

·  agree the contract period, including any optional extension periods;

·  award the contract following the tender process; and

·  agree the approval process for any optional contract extensions.

With the process needing to comply with EU Public Procurement Rules (total contract value exceeding the EU threshold) itwas proposed to tender using an open process including advertising in the OJEU and on Contracts Finder. The Council would then be able to set its own conditions and evaluation criteria and with only four established potential providers neither a pre-qualification process would be necessary nor the use of a framework agreement i.e. the Actuarial, Benefit and Governance Consultancy Services Frameworklaunched in 2016 by the National LGPS Frameworks. It was also highlighted that the Framework’s evaluation criteria only provided a maximum price weighting of 20-40% depending upon the lot, with fixed element/activity weightings within that and a one-off joining fee of up to £5k, dependent upon the number of lots used. There would also be a requirement to use framework documentation and when tendering the contract in 2012 costs under another framework were considerably higher.

It was intended to ask tenderers to provide unit prices for the various activities which would be combined with estimated activity levels to provide a total tender price for evaluation. Evaluation of the tender was proposed on the basis of 60% pricing and 40% quality and carried out using the Council’s standard CIPFA evaluation model.

Due to the interrelated nature of the services there would be no benefit in splitting the service into different lots for tendering; this could be detrimental should different actuaries carry out different elements of the work.

Members considered permutations to the proposed length of contract e.g. 3 + 3 + 3 or 9 + 3 (to potentially provide more certainty and quality). It was also necessary to take account of triennial valuations and the Mears scheme. As a consideration and in view of the cost of tendering the Chairman suggested keeping the level of tendering to a minimum. Members also considered a proposed 60%/40% pricing/quality split and whether a higher percentage should be given to quality for this tender. It was also felt important to have an actuary who understood the L B Bromley  ...  view the full minutes text for item 15.