Agenda and minutes

Apologies were received from Councillor Eric Bosshard.

The Chairman declared a personal interest as a Member of the Bromley Local Government Pension Scheme and as a pensioner of another Local Authority for whom he had worked in the teaching profession. Councillors Paul Lynch, Julian Grainger, Russell Mellor and Stephen Wells also declared a Personal Interest as Members of the Bromley Local Government Pension Scheme.

The minutes were agreed.

• Trial Asset Allocation Service (Minute 29 – 02.02.10 and Minute 38 – 04.05.10)

Covered in Part 2 report at item 13

• Inclusion of Property in the Bromley Pension Fund (Minute 36 – 04.05.10)

Covered in Part 2 report at item 15

The two matters highlighted – Trial Asset Allocation Service and the Inclusion of Property in the Bromley Pension Fund - were covered at items 13 and 15 of the agenda.

To hear questions received in writing by the Legal, Democratic and Customer Services Department by 5pm on Thursday 2^nd September 2010 and to respond.

There were no questions.

Report DR10074

Bromley’s Pension Fund performance was closely linked to item 7 of the agenda, “WM Annual Report” and the Sub-Committee considered both items together. 

Members received information on the investment performance of Bromley’s Pension Fund for 2009/10 and the first quarter of 2010/11. Information was also provided on the general financial and membership trends of the fund along with summarised information on early retirements.

In year performance of the fund was the second best of 87 local authority funds forming the local authority universe and ranked in the second percentile of the universe. A WM report previously circulated to Members provided a comprehensive analysis of performance with a WM document entitled “UK Local Authority Annual Review 2009/10” providing an overall review of Local Authority funds for 2009/10.

The total market value of Bromley’s Fund had fluctuated considerably in recent years from £180m in 2002/03 to £422m at 23rd August 2010. Given the long-term nature of liabilities, the conversion of performance to medium and long-term returns had been extremely good. Baillie Gifford had achieved an overall return of +51.3% (6.3% above their benchmark for the year) and Fidelity had returned +45.9% (4.4% above benchmark). Overall Fund performance was 9.9% above the local authority average for the year.

A summary of performance by Baillie Gifford and Fidelity was also shown for the June quarter 2010/11 with Baillie Gifford returning -7.6% (0.8% above their benchmark) and Fidelity returning -9.0% (0.7% below their benchmark).  For periods ended 31st March 2010, brief commentary was also provided on comparative returns over three, five and ten years for the two fund managers, The strength of Bromley’s performance in the last three years was also highlighted following bedding in of the investment strategy driven by adoption of the revised benchmark in 2006.

Additional information to Members included: a summary of early retirements (including those on ill health grounds); details of the 2009/10 Pension Fund Revenue Account outturn and first quarter position for 2010/11; data on fund membership; and changes in the Fund’s Market Value. The final outturn for 2009/10 showed a surplus of £9.4m and on fund membership there was an overall increase of 516 members during the year..

A representative of the WM Company gave a presentation on the 2009/10 results and circulated a document reviewing Bromley’s Investment Performance. 

Referring to the document the representative commented on market background highlighting the relative performance of Equities, Bonds, Alternatives and Currencies. She referred to good returns from equities and an average return for Bonds of about 17%. She also commented on the longer term performance of assets to March 2010; Performance of Assets relative to Market Indices and Local Authority Average Asset Allocation. She explained that a number of other Local Authority funds were investing in Alternatives and returns from these assets had not helped recent performance of LA funds. LA funds were producing a return of some 8.5% above inflation but Active Managers were often not achieving what they should be against  ...  view the full minutes text for item 6.

A printed copy of the WM Annual Report is circulated to Sub-Committee Members with this agenda. A representative of the WM Company will attend the meeting to speak on this item. 

Please see Minute 6 above.

Report DR10078

At its meeting on 23rd March 2010, the Audit Sub-Committee noted the 2009/10 Audit Plan of the Pension Fund referring it to the Pension Investment Sub-Committee for consideration. Members were advised that the auditor, PricewaterhouseCoopers LLP (PWC), had now effectively completed their audit of the Council’s accounts, including the Pension Fund, and the Plan was therefore submitted to Members for information.

It was also proposed that the 2010/11 Audit Plan be submitted to Members in advance of the audit to enable proper consideration and opportunity to comment.

RESOLVED that the Pension Fund Audit Plan for 2009/10 be noted and the 2010/11 plan be submitted earlier to enable consideration in advance of the audit.

Report DR10077

Under the Local Government Pension Scheme (Administration) Regulations 2008 the Council was required to publish the annual report and accounts of the Bromley Pension Fund for year ending 31st March 2010.

The annual report was submitted in draft to the external auditor, Price Waterhouse Coopers LLP (PWC) on 2nd July 2010 and following external audit of the Pension Fund accounts a final draft was submitted for audit on 13th August 2010. The Council is required to publish the Annual Report by 1st December 2010.

The Bromley Pension Fund had total net assets of £447.8m at 31st March 2010 compared with £299.2m at 31st March 2009 - the large increase in value at almost 50% being due to a major stock market recovery. This followed the turmoil faced by financial markets in 2008/09 when the fund lost around £63m (17%).

The Fund outperformed against its benchmark by 5.0% over the year (+48.7% against a benchmark return of +41.0%). Performance compared to the local authority universe (average return of +35.2%) was particularly good and a 2% ranking in that universe was achieved for the year (1% being the best and 100% being the worst).

Total membership of the fund rose from 12,864 at 31st March 2009 to 13,380 as at 31st March 2010 when it comprised 5,360 employees, 4,413 pensioners and 3,607 deferred members. Payments into the Fund from employee and employer contributions, transfers in and investment income totalled £40.8m in 2009/10 (£37.3m in 2008/09); payments from the Fund for pensions, lump sums, transfers out and administration totalled £31.4m (£25.4m in 2008/09).

Members were informed that PWC would include a revised opinion at pages 25 to 26 of the Annual Report upon completion of the audit.

RESOLVED that the Pension Fund Annual Report 2009/10 be noted and, on completion of the external audit by PWC, arrangements be made to ensure publication by the statutory deadline of 1st December 2010.

Report DR10081

Changes were proposed to the Pension Fund Statement of Investment Principles in order to meet requirements of the new Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 and to indicate the level of compliance with Myners’ Principles on institutional investment (updated and adjusted to reflect the Local Government Pension Scheme). The new regulations required a statement on the Fund’s stock lending activities and its policy on responsible ownership to be included in the Statement of Investment Principles.

The Principles were revised during 2008 with the publication of a new set of six principles. These were subsequently reviewed by a working group in 2009 and adjusted to reflect the specific nature of the Local Government Pension Scheme (LGPS). In December 2009, the Chartered Institute of Public Finance and Accountancy (CIPFA) issued statutory guidance for Local Government Pension Schemes to determine their level of compliance with the Principles.

The regulations set out the framework within which the investment of LGPS monies can take place and define investments and investment managers. They also specify the need for diversification, risk management and professional advice.

The revised regulations came into force on 1st January 2010 and three changes were brought to the attention of Members:

• Pension fund cash held by the Council for the payment of benefits would be subject to a separate treasury management strategy and could not be lent to the Council - this was being updated through a revised approach to the separation of funds;

• The Statement of Investment Principles should include a statement of the extent to which the Fund complied with the statutory guidance on the six new “Myners’ Principles”;

• The Statement of Investment Principles should now include a reference to the Fund’s stock lending activities and the policy on responsible ownership.

A draft Statement of Investment Principles was appended to the report before Members. Developments were necessary in certain areas in order for the Fund to fully comply with the Principles and these were summarised along with suggested actions and timescales to ensure compliance. The majority of these would form part of a review of working practices to be completed by December 2011.

Although the new regulations required the Fund to publish details of its stock lending policy and ways of measuring and managing associated risks, this was not currently applicable to Bromley’s fund.

Funds were also required to include a statement of their policy on responsible ownership in the Statement of Investment Principles (Principle 5) and Members were advised that the statements of voting and social and ethical and environmental considerations from the previous versions had been combined to meet this requirement.

RESOLVED that the report be noted and the revised Statement of

Investment Principles set out at Appendix 1 to the report before Members be agreed.

The Chairman to move that the Press and public be excluded during consideration of the items of business referred to below as it is likely in view of the nature of the business to be transacted or the nature of the proceedings that if members of the Press and public were present there would be disclosure to them of exempt information.

The Part 2 minutes were agreed.

An update will be provided at the meeting.

Members considered the current position on their request for further information from AEGON Assert management on its Asset Allocation Service.

RESOLVED that AEGON be asked to produce a report to the Sub Committee’s next meeting providing the information requested by Members.  

Printed copies of reports from both Fund Managers i.e. Fidelity and Baillie Gifford are circulated to Sub-Committee Members with this agenda. Representatives of Fidelity will attend the meeting to speak on this item.

Quarterly performance reports (to 30^th June 2010) from Fidelity and Baillie Gifford had been circulated to Sub Committee Members prior to the meeting. The reports were noted and a representative from Fidelity attended the meeting to present the Fidelity review and answer questions from Members.

Report DR10079

In response to a request at the Sub-Committee’s previous meeting a report was provided on property investment and consideration was given on whether to include this asset class for the Bromley Pension Fund.

RESOLVED that the Sub-Committee be asked to note the report and maintain a watching brief on the property market.