Agenda and minutes

Apologies were received from Councillor Richard Williams.

Councillor Russell Mellor declared a personal interest by virtue of receiving a pension from the Local Government Pension Scheme.

Councillor Eric Bosshard declared a personal interest as a former Member of the Local Government Pension Scheme.

Councillor Simon Fawthrop declared a personal interest as a former Member of the Local Government Pension Scheme

The minutes of the meetings held on 2^nd December 2014 and on 3^rd February 2015 (excluding exempt information) were agreed.

The Director of Finance gave a brief update on matters concerning the CIV-Collective Investment Vehicle. Three London Boroughs had not yet joined the CIV and this number was expected to reduce to two, including Bromley. The cost of joining the CIV was previously £25k, but now the cost was expected to rise to £75k, and negotiation of fees with fund managers was expected to provide compensatory savings. 

The concern that LBB had with joining the CIV was the fact that LBB may have to come into an agreement with other boroughs that were not as financially stable as LBB, and that this could be disadvantageous. There were also concerns as to what may happen in the future, subsequent to joining the CIV.

The Director of Finance informed the Committee that plans to join the Local Pension Board had recently been finalised at Full Council. 

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 Wednesday 18^th February 2015.

There were no questions from members of the public attending the meeting.

The report summarised the investment performance of Bromley’s Pension Fund in the third quarter of 2014/15. Members heard that the fund ended the December 2014 quarter with a total valuation of £693.9m, but that by the end of January 2015, the valuation had risen to £714.9m. The Sub Committee were pleased to learn that not only had the value of the Fund increased recently, but also that the medium to long term results had been consistently strong over a long period.

The Committee examined a table of rankings (percentiles) with respect to local authority pension schemes. It was noted that LBB’s position in the rankings was generally very good. For the three year period 01/01/12--31/12/14, the LBB Pension fund was ranked in the 4^th percentile, and for the one year period from 01/01/14 to 31/12/14, the Fund was ranked in the 9^th percentile. These rankings were very good. 

The Committee noted the section of the report dealing with financial implications, and the fact that for the first three quarters of 2014/15, a net surplus of £2.5m had been achieved. There was a query from a Member concerning what would be done with this, and he was assured that the money would stay within the Pension Fund. The Committee also noted that membership of the Pension Fund had increased by 646 since 1^st April 2014.

The Director of Finance provided an update on an interim actuarial valuation for the fund which would be circulated separately to Members of this sub-committee. Although there had been a very good performance on investments which exceeded the actuarial previous assumptions, the cost of liabilities had increased by a greater amount, and he referred to low 10 year gilt yields which influenced the calculation of liabilities. 

RESOLVED that the Pension Fund Performance report be noted. 

Simon Betteley (Client Director) and Richard Mathieson (Senior Investment Strategist) presented on behalf of Blackrock. Having completed a first year of working for LBB as Pension Fund managers, they came to discuss performance, economic outlook, and prospects.

The Committee were informed that with respect to asset allocation, the value of the equity fund managed by Blackrock as at 31 December 2014 was £139,283,178; however a more recent valuation of the fund as at 9^th February 2015, valued the fund at £143,959,425.

The Committee were informed that the equity fund was the “Ascent Life Enhanced Global Equity Fund” and that over the last twelve months the fund had seen a gross increase in value of 14.31%. Blackrock were of the opinion that the equity markets were largely responsive and directed by central bank policy. They felt that the value of the fund had increased dramatically in the year and were very positive. They were however, expecting that a period of volatility would follow any rise in interest rates. Blackrock expected a small rate rise this year.

Blackrock commented on quantitative easing in the Japanese markets, combined with low interest rates. They were of the opinion that the US and UK economies would exhibit tight control by the central banks, but that in Europe and Japan controls would be looser; this they felt would cause a period of volatility. It could be broadly stated that the Blackrock presentation was divided primarily into three areas, the investment process; performance and research. 

The Blackrock presentation emphasised SAE—Scientific Active Equity global platform, and Blackrock’s links with the IT community in San Francisco where their main HQ was based. The SAE global equity software technology enabled Blackrock to harness the latest technology and internet search data to process 200 different data feeds for over 4,000 stocks in over 40 countries on a daily basis. The main types of stock that Blackrock would invest in would be:

·  stocks underpinned by attractive fundamentals

·  stocks supported by positive sentiment and market activity

·  stocks with positive exposure to macro themes

Blackrock referred the Committee to their SAE Global equity strategy performance which had provided consistently good results over the last five years. The Committee were informed that the strategy performance was well above target, and that the three and five year information ratio was ranked as the top percentile relative to peer groups.

Blackrock proceeded to provide some further detail on the fund performance, before looking in more detail at their “Overweight” and “Underweight” positions. Blackrock had high regard for the US semi-conductor markets, US Energy markets, the Japanese domestic market, and markets where companies were involved in exporting to the Eurozone; in these sectors they held “Overweight” positions. Conversely, they held “underweight” positions in the Eurozone Domestic markets, US Consumer Markets and the Global Materials markets.

A Member asked if consideration was given in their financial modelling software to exposure to foreign exchange movements, and how much profits may be affected by movements in the foreign exchange markets.  ...  view the full minutes text for item 29.

Alick Stevenson and Patricia O’Loughlin attended on behalf of the Fund’s advisers, Allenbridge Epic. Their recommendation was to undertake a gradual move in capital from Fidelity’s fixed income holding in the UK Aggregate Bond Fund to the Fixed Income Diversified Alpha (FIDA) Fund.

AllenbridgeEpic had recommended the transfer of funds for various reasons, and these included the fact that they felt that the FIDA Fund was liquid, unconstrained and would mean that LBB would not be tied to just investing in Government Bonds. AllenbridgeEpic advised the Committee that it was not worth investing in Government Bonds at the moment as the returns were too low. AllenbridgeEpic stated that the FIDA Fund was a low volatility fund with a strong capital presentation; the money could be transferred over quickly at no cost.

A Member urged caution on the basis that not enough information was available on risk, and where the existing money in the new Fund had been invested.  Alick Stevenson responded that if this information was required, he would have to do some research and bring the answer back to the next Committee meeting. Mr Stevenson then noted some information on the report concerning the FIDA fund, and managed to provide the Committee with some information concerning where the exiting monies had been invested. It seemed to be the case that most of the money in the FIDA Fund was invested in derivatives; the Committee were not happy with this because of the risk of financial loss. The Vice-Chairman recommended that the matter be put on hold, and looked at again at the next meeting, when more detail could be provided. Martin Reeves (Principal Accountant) informed the Committee that Fidelity were due to attend the next meeting of the Pensions and Investment Sub Committee on the 19^th May. This being the case, the Committee decided to postpone any decision concerning the FIDA Fund until speaking to Fidelity at the next meeting.

Mr Stevenson was requested to contact Bailey Gifford to see what other products they had in comparison with Fidelity.

RESOLVED

(1) that the Revised Investment Strategy Phase 3 report be noted

(2) that Baillie Gifford continue to manage the fixed income portfolio under their existing aggregate Bond Fund

(3) that Fidelity be invited to the next meeting, where more detail on the FIDA Fund could be provided

(4) that Mr Stevenson from AllenbridgeEpic contacts Bailey Gifford to see what other products they have in comparison with Fidelity.

The exempt minutes of the meeting held on December 2^nd 2014 were agreed.

Resolved that the exempt minutes for December 2^nd 2014 could now be made public.