Agenda and minutes

Apologies were received from Councillor Russell Mellor.

Members present declared an interest as members of the Bromley Local Government Pension Scheme.

The minutes were agreed.

Matters Outstanding from Previous Meetings - Triennial valuation

(Minute 78f – 9^th May 2013)

A verbal update will be provided at the meeting during discussion at item 8 (please see section 3.1 of report RES13170).

It was noted that an update concerning the Triennial valuation would be provided at item 8 of the agenda.

In accordance with the Council’s Constitution, questions to this 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 Thursday 12^th September 2013.

There were no questions.

Report RES13168

Members considered the annual report and accounts of the Bromley Pension Fund for year ended 31^st March 2013. It was intended to publish the Annual Report on the Council website by 1^st December 2013 in accordance with regulations.

The annual report had been submitted in draft form to the external auditor, PricewaterhouseCoopers LLP (PWC). Feedback on their audit of the Fund accounts was also provided to Members.

With reference to Benchmarks for the Balanced Mangers at page 53 of the Annual Report, a typographic error was noted in relation to Fidelity’s allocation range for its Bonds, UK aggregate asset class. The range should read 15 to 25% rather than 5 to 15%. The error would be corrected in the final version of the Annual Report to be published.

For the Pension Fund Revenue Account, Councillor Grainger noted a final administration outturn in 2012/13 of nearly £1.9m.

Noting the Governance Policy Statement and reference to the Sub Committee having management responsibility for the Council’s additional voluntary contributions (AVC) scheme, it was indicated that the framework of AVC provision would be reviewed in future. When it was proposed to change the framework, a report would be provided to the Sub Committee.

Stock lending was also highlighted. Members were advised that institutions suffered market losses through the practice during the Lehman Brothers

crises. The practice is typically run on segregated portfolios, although pooled funds have a prospective right to lend stock - unit holders would be indemnified. Stock lending is not a forbidden practice and it is possible for Baillie Gifford and Fidelity to be involved in stock lending with client approval. Councillor Grainger suggested that stock lending be considered further at the Sub Committee’s next meeting, including whether the cost of stock lending is outweighed by segregated portfolios. Mr Stevenson suggested that any report be considered after completion of the Fund’s restructure, which Councillor Grainger accepted.

Highlighting the deficit and the level of employer contributions from revenue funding, Councillor Bosshard suggested that these issues needed to be addressed in a Council context over the next four years. He suggested that employees needed to pay a higher contribution to the Fund. The Chairman predicted that such changes would come from central government level. 

RESOLVED that the Pension Fund Annual Report 2012/13 be noted and approved and, on completion of the external audit by PWC, arrangements be made to ensure publication of the Annual Report by the 1^st December 2013 statutory deadline.

Report RES13167

Summary details were provided of the investment performance of Bromley’s Pension Fund for the first quarter 2013/14 along with information on general financial and membership trends of the Fund and summarised information on early retirements.

AllenbridgeEpic, provided further detail on investment performance and Fidelity and Baillie Gifford each provided commentary on recent developments in financial markets and their impact on the Council’s Fund and future outlook.

A representative of the WM Company also gave a presentation on the Fund’s 2012/13 results with a WM document for period ending 31^st March 2013, providing a performance analysis. The WM UK Local Authority Annual Review 2012/13 had been provided to Members prior to the meeting.

The market value of the Fund fell slightly during the June quarter to £582.4m compared to £583.9m at 31^st March 2013. The comparable value at 30th June 2012 was £486.6m. By 3^rd September 2013, the Fund value had risen to £596.8m.

Until 2006, the target for Fund managers was to outperform the local authority universe average by 0.5% over rolling three year periods. Following a review of management arrangements in 2006, both managers were set performance targets relative to their strategic benchmarks; Baillie Gifford’s target being to outperform benchmark by 1.0% - 1.5% over three-year periods and Fidelity’s to outperform by 1.9% over three-year periods.

Although the 2012 strategy review saw maintenance of an 80%/20% split between growth seeking assets and protection assets, the growth element would comprise a 10% investment in Diversified Growth Funds (DGF) and 70% in global equities, the latter removing arbitrary regional weightings in favour of flexibility in world stock markets and potentially improved long-term returns. Baillie Gifford and Standard Life each received £25m on 6th December 2012 from Fidelity’s equity holdings to establish the DGF allocation (Phase 1 of the new strategy) and details were provided of March and June quarterly returns for this allocation. 

On 2012/13 performance, Baillie Gifford returned +16.9% (1.9% above benchmark and ranked in the 3rd percentile) and Fidelity returned +18.3% (3.4% above benchmark and ranked in the 1st percentile). Overall Fund performance (+2.8%) was 3.0% above the local authority average for the year achieving an overall ranking in the 4th percentile.

Details were also provided of 2013/14 first quarter performance for the two balanced fund managers. Baillie Gifford returned -0.5% in the June quarter (0.9% above the benchmark) and Fidelity returned +0.5% (1.7% above benchmark). L B Bromley’s local authority ranking for the June quarter was in the 22nd percentile and, in the year to 30^th June 2013, was in the 3rd percentile.

The Fund’s medium and long-term returns also remained particularly strong with long-term rankings to 30^th June 2013 in the 8th percentile for three years, the 3rd percentile for five years and the 2nd percentile for ten years. Returns for Baillie Gifford over three and ten years ended 30^th June 2013 (12.8% and 10.4% respectively) compared favourably with those of Fidelity (12.4% and 10.0% respectively).  ...  view the full minutes text for item 7.

Report RES13170

Members considered an update on the public debate related to a possible merger of Local Government Pension Funds.

Proposals for a London Pensions Mutual entail plans to merge all London funds under the London Pension Fund Authority (LPFA) claiming a merged scheme to be more efficient compared to separate, smaller funds e.g. lower administration costs and better returns. However, there was inconclusive evidence to support the case for better returns and L B Bromley as a smaller fund had achieved excellent returns. Moreover, any underperformance as part of a bigger fund would result in costs to council tax payers. A merger of funds could lead to a more risk adverse approach to investments and longer term lower returns would have cost implications for meeting the Council’s pension fund deficit level and future pension costs.

Alternative proposals from London Leaders (London Councils) promote the advantages of a Collaborative Investment Vehicle (CIV). The Leaders Committee of London Councils agreed in principle to move towards a CIV for interested boroughs, subject to consideration of outcomes from further work commissioned by a Working Group (a further report being due this autumn). Should London Councils decide not to proceed with a CIV, sufficient support remained for a lead borough arrangement to operate a CIV.

Report RES13170 itemised the main benefits of a CIV undertaken by one organisation on behalf of other local authorities. The CIV was expected to reduce costs and enable the choice of better performing fund managers. New asset classes could also be explored e.g. infrastructure.

Boroughs would retain their own control over asset allocation and accounting responsibilities. At each triennial valuation, local authorities would continue to agree their updated Funding Strategy and Strategic Asset Allocation and Statement of Investment Principles.

More generally, a “Call for Evidence on the future structure of the Local Government Pension Scheme” was issued by the Local Government Association (LGA) and the Department for Communities and Local Government (DCLG) for response by 27 September 2013. L B Bromley’s response would be undertaken by the Director of Finance in consultation with the Sub-Committee Chairman.

L B Wandsworth was willing to host a London-wide CIV if required. A contribution of up to £25k towards set up costs was required but it was anticipated that ongoing CIV costs would be self financing through a negotiation of reduced management fees with fund managers. Any costs would be met by the Pension Fund.

With a CIV arrangement, each pension committee could choose whether to use a fund manager from the CIV, retain its current managers or use a combination of both. For example a CIV could be used to diversify into alternative asset classes such as infrastructure, with respective economies of scale not being possible through a single fund.

Greater collaboration was key for the future. Many of the best performing pension funds longer term have been the smallest, including L B Bromley. Potential savings could be made through collaboration without the need for costly and complex  ...  view the full minutes text for item 8.

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.

RESOLVED 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 following summaries

refer to matters

involving exempt information

The Part 2 minutes were agreed.

Report RES13169

Members considered a further report on Phase 2 of the revised investment strategy for the L B Bromley Pension Fund.

Printed copies of reports from the Council’s Fund Managers are circulated to Sub-Committee Members with this agenda. Representatives of Fidelity will be attending the meeting for this item.

Quarterly performance reports (to 30^th June 2013) from Baillie Gifford and Fidelity had been circulated to Sub Committee Members prior to the meeting along with quarterly reports (to 30^th June 2013) from Standard Life Investments and Baillie Gifford in respect of the Diversified Growth Fund investments.

A representative from Fidelity attended the meeting to present their investment review and answer questions.