Agenda item

Report FSD15029

It had previously been agreed that 20% of the Pension Fund be allocated to Fixed Income. Fixed Income assets provide cash for the pension fund which is required for cash to pay pension liabilities, but they have a lower return than global equities. At the meeting of the PISC in February 2015, consideration was given to allocating a pot of money from the current fixed income fund managed by Fidelity (UK Aggregate Bond Fund) into a new fixed income fund called the FIDA Fund. FIDA is an abbreviation for Fixed Income Diversified Alpha Fund. The decision on this was deferred in February to tonight’s meeting, to give the Committee further time for consideration of this matter, and to speak to the Fidelity Fund Manager directly.

There was discussion amongst committee members concerning the correct balance between equities and fixed income. Some Members felt that a 20% allocation to fixed income was too high, and that the Fund should invest more in equities—others felt that 20% was fine, and that it may not be a good idea to have too much exposure in equities. It was a problem of balance.

The Committee discussed the two decisions that they were required to make on the night.

The first decision that the committee were asked to consider was to agree to invest £6m in the FIDA Fund, the money for this to be transferred from Fidelity’s existing UK Aggregate Bond Fund.

The other decision that the Committee were asked to consider was invest £3m in Baillie Gifford’s Global Credit Fund, and £3m in Baillie Gifford’s Emerging Market Bond Funds—this money (total £6m) to be transferred from the existing Baillie Gifford Sterling Aggregate Bond Fund.

There was some discussion amongst Members concerning the role and recommendations of the Actuary. It was noted that the Fund had to be fully funded, and that if Actuarial advice was not followed, then in some cases this may be queried by external audit. It was noted however, that although the Actuary may have recommended a 20% allocation to Fixed Income, he had obviously not specifically recommended the FIDA Fund.

LBB’s financial advisor commented that it may be prudent for Members to take a vote. However, he cautioned against an overweight equity position. He referred Members to page 23 of the agenda where there was a table showing Fund Value as at 31^st March 2015. The percentage of the Fund currently allocated to global equities was 74%, and so it would not be wise to further extend this overweight position. This would naturally have the converse effect on fixed income which would then be proportionally underweight.

RESOLVED:

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

(2) the proposal to invest £6m in Fidelity’s FIDA Fund was rejected

(3) it was agreed to invest £6m, split equally between Baillie Gifford’s Global Credit and Emerging Market Bond Funds—the money for this to be transferred from Baillie Gifford’s Sterling Aggregate Bond Fund

 (4) That the Director, in consultation with the Chairman and Vice Chairman, arrange the transfer of £6m from Fidelity to one of the global equities fund.