Agenda and draft minutes

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Contact: Keith Pringle  020 8313 4508

Items
No. Item

14.

APOLOGIES FOR ABSENCE AND NOTIFICATION OF SUBSTITUTE MEMBERS

Minutes:

Apologies were received from Cllr Gary Stevens and Cllr Mark Brock attended as alternate.

15.

DECLARATIONS OF INTEREST

Minutes:

There were no new declarations of interest.

16.

MINUTES OF THE PENSIONS INVESTMENT SUB-COMMITTEE MEETING HELD ON 15TH MAY 2019 pdf icon PDF 149 KB

To Follow

Minutes:

The minutes of the meeting held on 15th May 2019 were agreed and signed as a correct record.

17.

QUESTIONS BY MEMBERS OF THE PUBLIC ATTENDING THE MEETING

In accordance with the Council’s Constitution, questions that are not specific to reports on the agenda must have been received in writing 10 working days before the date of the meeting. 

 

Questions specifically relating to reports on the agenda should be received within two working days of the normal publication date of the agenda. Please ensure that questions specifically on reports on the agenda are received by the Democratic Services Team by 5pm on Thursday 18th July 2019.

Minutes:

Two questions for written response had been submitted by Gill Slater.

 

The questions and answers have been appended to the minutes and Ms Slater has been provided with a copy of the answers via email.

18.

UPDATES FROM THE CHAIRMAN AND/OR DIRECTOR OF FINANCE

Minutes:

The Director of Finance updated the Committee regarding the ‘McCloud Judgement’.

 

The Local Government Pension Scheme faced ongoing uncertainty over compensation costs, after the Supreme Court ruled that changes made in 2015 to public sector pensions had discriminated against younger employees.

 

Judges had ruled in favour of the Fire Brigades Union (FBU) and a group of judges led by Victoria McCloud, challenging the rule changes, which protected the pension benefits of older workers.

 

The Supreme Court ruling meant that council pension funds would probably have to compensate and account for payments to ensure that no employee was left out of pocket.

 

The ruling said: “We have found that in both the judges’ and firefighters’ cases the manner in which the transitional provisions have been implemented has given rise to unlawful direct age discrimination’.

 

The Director informed Members that the ruling could potentially add another £10m to Bromley’s pension liabilities with further ongoing annual costs to the employer costs. The Director was disappointed by the ruling, and the exact cost impact would have to be determined by the Actuary.

 

The Director informed Members that Schroeder’s had an US Dollar denominated fund that would be moving to a sterling denominated product. The change had been negotiated by John Arthur (MJ Hudson) at no cost to the Council, and it could be the case that the Council would make a profit from the change.

 

A discussion took place concerning Neil Woodford’s Equity Income Fund which had got into difficulty due to the high volume of illiquid assets which was not able to meet demand when a large number of investors tried to withdraw their money at the same time. 

 

RESOLVED that the update provided by the Director of Finance is noted.

19.

PENSION FUND DRAFT ANNUAL REPORT 2018/19 pdf icon PDF 82 KB

Additional documents:

Minutes:

Members noted that this report had been written as an introduction to the draft annual report and accounts for the Bromley Pension Fund for year ending 31st March 2019. Subsequent to scrutiny of the report by the Pensions & Investment Sub-Committee, the report would also be subject to auditing by the Fund’s external auditor. To comply with the Government Pension Scheme Regulations, the Council was required to publish the final version of the Annual Report on its website by 1st December 2019.

 

The four separate documents that were required to be incorporated into the report were noted:

 

·  Governance Policy Statement

·  Funding Strategy Statement

·  Investment Strategy Statement

·  Communications Policy Statement

 

Members noted and approved the statements. 

 

The corresponding Governance Compliance Statement (for the Governance Policy Statement) had been presented to the GP&L Committee in July 2008, and was also attached to the meeting papers for Members’ information.

 

Members were advised that as at 31st March 2019, the net assets of the Bromley Pension Fund were £1,039m.

 

The Committee was briefed that the Bromley Pension Fund performance for the last financial year was 7.99% which was slightly below the benchmark target of 8.27%. However, the performance of the fund was still strong and had been over the medium and long term.

 

Members were briefed that the external auditors (Ernst and Young) had not yet completed their audit of the pension fund accounts, and that the publication deadline for the audit (31st July) would not be met. It was anticipated that the audit of the accounts would be reported back to the GP&L Committee on 19th September 2019.

 

Members were updated regarding Risk Management. ‘Risk' in this context was the risk that the funding strategy may fail, and that target funding levels would not be met. The Pension Risk Register was used as a key tool for the management of risk, and this had been incorporated into the agenda for the attention of Members. Further assurance in terms of risk management was provided by the internal control documents produced by both the investment managers and the custodian. These documents identified internal processes and procedures, along with the associated audit testing. Risk was minimised further because the Fund’s independent investment adviser monitored the market and the activities of investment managers.

 

Regarding financial performance, the Committee was pleased to note that day to day income and expenditure for the Fund showed an overall surplus of £12.1m in 2018/2019. 

 

The results of the Internal Audit undertaken in 2018/2019 showed that controls were in place and working well and had resulted in a ‘substantial’ audit assurance rating.

 

Members noted that the regulations required that an actuarial valuation be undertaken every three years and that the Pensions and Investment Sub-Committee (PISC) was responsible for considering the report. The most recent valuation was at 31st March 2016. Members were pleased to note that the value of the Fund’s assets in the 2016 valuation represented 91% of the value of the liabilities, up from  ...  view the full minutes text for item 19.

20.

PRESENTATION FROM FIDELITY

Representatives of Fidelity are expected to attend the meeting for this item.

Minutes:

Paul Harris (Relationship Director) and Steve Bramley (Investment Director-Fixed Income) attended from Fidelity to update the Committee on the Fidelity Global Multi Asset Credit Strategy.

 

Mr Harris commenced by providing an introduction and general overview of the Fidelity Global Multi Asset Credit Strategy (GMACS) and then the product was detailed in some depth by Mr Bramley. It was noted that the current Fidelity UK Aggregate Bond Fund had served the Council well since its inception, and had yielded above market returns for that type of investment. The Fund had invested primarily in UK Gilts and GBP denominated investment grade corporate bonds. The Fund was moderately to highly sensitive to interest rates, yielded 2.0% in returns and invested in A+ bonds.

 

Mr Harris suggested that as circumstances had now changed and because interest rates could not really fall any lower, now may be the right time to consider an alternative investment strategy in the Fidelity Global Multi Asset Credit Strategy Fund. (GMACS). It was explained that the GMACS would provide wider flexibility to allow for a dynamic allocation to different types of bonds at varying points in the business cycle. The success or otherwise of the UK Aggregate Bond Fund had been judged by comparing its performance to similar investment strategies; the GMACS would be judged by its total return. The GMACS was less sensitive to interest rate changes and was anticipated to yield 4.7%. The average credit rating of investments would be BB+. The plan was to move away from a UK based strategy to a global one. Fidelity expressed the view that the GMACS was an outcome orientated product that was better suited to fulfilling longer term objectives. The objective was to achieve the best returns for minimum risk.

 

Mr Bramley explained the differences between the investment objectives and key investment parameters of the existing fund and the GMACS. He also explained the way that assets were allocated and Fidelity’s approach to derivative usage. Derivatives could be used in a flexible manner to hedge out unwanted risks. It was also the case that the existing UK Aggregate Bond Fund used derivatives when it was thought appropriate.

 

A Member stated that LBB currently held about 60% of the current fund value in equities, and the existing fixed income bonds helped to de-risk this, so if LBB were to accept a six notch downgrade in the average credit quality; LBB would either need to reduce the current allocation to equities or do something else in order to maintain the aggregate risk of the portfolio. He further expressed the view that it would have been helpful if Mr Harris had mentioned that the fees would be 50% greater on the new fund, effectively going from 30 to 44 bases points. Mr Harris answered and said that he had not got to that slide in the presentation yet and was not attempting to hide anything from the Committee.

 

Mr Harris said that the fees would be higher on the GMACS as it was  ...  view the full minutes text for item 20.

21.

PENSION FUND RISK REGISTER pdf icon PDF 67 KB

Additional documents:

Minutes:

The Committee was pleased to note that the Pension Fund Risk Register did not show any red flagged risks. There were only two amber risks that had been flagged. These were related to the possible under performance of fund managers and market risks.

 

A Member expressed surprise that the ‘Governance Risk’ was green.

 

RESOLVED that the Committee notes the current Pension Fund Risk Register and also the existing controls in place to mitigate risks.  

22.

LOCAL GOVERNMENT ACT 1972 AS AMENDED BY THE LOCAL GOVERNMENT (ACCESS TO INFORMATION) (VARIATION) ORDER 2006 AND FREEDOM OF INFORMATION ACT 2000

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.

Minutes:

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

23.

FIDELITY UPDATE--EXEMPT INFORMATION

Minutes:

The element of the discussion regarding Fidelity that referred to confidential information was noted in the Part 2 minutes.

24.

EXEMPT MINUTES OF THE PENSIONS INVESTMENT SUB-COMMITTEE MEETING HELD ON 15TH MAY 2019

To Follow

Minutes:

The exempt minutes of the Pensions & Investment Sub-Committee that met on 15th May 2019 were agreed and signed as a correct record.

25.

UPDATES FROM THE CHAIRMAN AND/OR DIRECTOR OF FINANCE ON ANY EXEMPT MATTERS

Minutes:

The updates from the Chairman regarding exempt matters were noted by the Committee.

 

 

Appendix A pdf icon PDF 57 KB

 

Original Text: