Agenda item

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). Over five years to 30^th June 2013, Fidelity (10.0%) outperformed Baillie Gifford (9.6%).

In his presentation, the WM representative covered the market environment; Fund performance against strategic benchmark, Fund performance against peers and risk return and strategy. The WM representative included the following points in his comments:

• there was a positive return for total assts during 2012/13 – a positive performance on all asset classes except property;
• with any reduction of quantitive easing (QE), bond yields would reduce; and 
• 2012/13 was a strong year for total fund performance with strong performance against benchmark and peer group.

In addition to his report analysing performance and investments for the Fund, Mr Stevenson also provided comments. He suggested that markets were resigned to a degree of tapering but even if cut, there would continue to be a significant amount of liquidity. Markets had moved ahead since the end of June. The VIX index rose to 17 but then moved back to 14. Financial conditions in Europe had not changed substantially in the previous six months. Although gold had fallen nearly 30% since the beginning of the year to a three year trading low by the end of June, its value had now increased by 10%. 

RESOLVED that the report be noted.