Agenda item

Report FSD17042

Members considered a recommended approach for implementing the Pension Fund Asset Allocation Strategy agreed at the Sub-Committee’s previous meeting on 5^th April 2017 i.e. no allocation to Diversified Growth Funds, reducing allocations to Global Equities and Fixed Interest, and introducing income generating allocations to Multi Asset Income (MAI) Funds and Property.

Report FSD17042 summarised the current and revised strategic allocations as:

AllenbridgeEpic had been appointed to manage Fund Manager procurement for the new mandates and a brief Allenbridge report and indicative timeline for the MAI Funds was appended to Report FSD17042. Two Managers were proposed for the MAI Funds to increase diversification and aid performance appraisal.

For Property Funds, Report FSD17042 proposed to initially manage £50m in a pooled property fund with the remaining balance (around £27m based on fund values at 30^th March 2017) being managed directly.

For both MAI funds and a pooled property fund a two-stage restricted tender process would be used advertised in the Official Journal of the European Union (OJEU). For both allocations it was proposed to delegate the Director of Finance (in consultation with the Chairman and Vice-Chairman) with authority to agree a shortlist of Fund Managers (to be recommended by AllenbridgeEpic) who would be invited to submit a tender following the PQQ process.

To implement the revised strategy it would be necessary to sell the Diversified Growth Funds and some 18% of assets in Global Equities (based on values at 31^st March 2017). A decision on which Global Equities assets to sell was proposed for a later meeting.

The Chairman explained that procurement documentation would include a requirement for the submission of tenders based on 80% quality and 20% price (rather than 70% quality and 30% price). This would convey a particular focus on quality when selecting the Fund Managers. It was intended to complete the procurement process by the end of the calendar year with decisions to be made at the Sub-Committee’s meeting on 21^st November 2017 and at a special Sub-Committee meeting initially proposed for 12^th December 2017. 

It was proposed that the allocation be amended to 5% Property and 20% MAI; direct investment in property (approximately £27m) would not then be necessary and the total property element could be managed in a pooled fund (value of some £50m).

A Member also reminded that the MAI funds were not to be weighted with derivatives; neither should the funds rely upon foreign exchange conditions for returns. Members were assured that PQQ documentation would highlight the need to limit use of derivatives. Stocks in futures could also be excluded if necessary. As the volume of MAI assets increased so the level of derivatives would reduce and derivatives would not be used for profit. On foreign exchange conditions, MAI investments could be hedged back to sterling.

Members agreed the recommendations in Report FSD17042 subject to the property allocation being in the range of £50m; having more than one Fund Manager for the MAI assets; having diversification; and having a minimal use of derivatives. Members also agreed that the Sub-Committee’s meeting on 21^st November 2017 would select Fund Managers for the MAI allocation and Fund Managers for Property would be selected at a special Sub-Committee meeting on 12^th December 2017 (Democratic Services Note: subsequently changed to 14^th December 2017). Careful consideration would be given to timetabling for both meetings.

More generally, Members discussed a preferred start time for future meetings of the Sub-Committee i.e. 7pm or 7.30pm. A vote confirmed that opinion was equally divided and it was agreed to consider the matter again at the Sub-Committee’s next meeting.

RESOLVED that:

(1)  the contents of the report be noted;

(2)  the proposed actions and indicative time-frames attached at Appendix 1 to Report FSD17042 be noted;

(3)  the allocation to Property comprise a value of approximately £50m managed through a pooled fund;

(4)  mandates be tendered for two Multi Asset Income Funds, and one Property Fund;

(5)  the Director of Finance, in consultation with the Chairman and Vice-Chairman, be delegated authority to select the shortlist of managers to be invited to submit a tender following the PQQ process; and

(6)  a Special Meeting of the Sub-Committee be held on 12^th December 2017 (Democratic Services Note: subsequently changed to

14^th December 2017) to award the Property pooled fund mandate (paragraph 3.3.3 of Report FSD17042).