Agenda and minutes

To note the attendance at this meeting of any duly appointed Reserve Members.

Reserve Members may attend meetings:-

(i)                 to take the place of an ordinary Member for whom they are a reserve;

(ii)               where the ordinary Member will be absent for the whole of the meeting; and

(iii)             the meeting notes at the start of the meeting at the item ‘Reserves’ that the Reserve Member is or will be attending as a reserve;

(iv)              if a Reserve Member whose intention to attend has been noted arrives after the commencement of the meeting, then that Reserve Member can only act as a Member from the start of the next item of business on the agenda after his/her arrival.

RESOLVED:  To note that there were no Reserve Members in attendance at this meeting.

To receive declarations of personal or prejudicial interests, arising from business to be transacted at this meeting, from:

(a)               all Members of the Committee, Sub Committee, Panel or Forum;

(b)               all other Members present in any part of the room or chamber.

RESOLVED:  To note that the following interests were declared:

Agenda Item 14 – INFORMATION REPORT – Report by Hymans Robertson on Wellington

Councillor Richard Romain declared a personal interest in that he had attended a presentation by Wellington in October 2010 where had received lunch and a gift.  He added that this had been included in his register of gifts and hospitality published on the Council’s internet.  He would remain in the room whilst the matter was considered and voted upon.

Agenda Item 15 – INFORMATION REPORT – Presentation by Wellington

Councillor Richard Romain declared a personal interest in that he had attended a presentation by Wellington in October 2010 where had received lunch and a gift.  He added that this had been included in his register of gifts and hospitality published on the Council’s internet.  He would remain in the room whilst the matter was considered and voted upon.

That the minutes of the meeting held on 19 October 2010 be taken as read and signed as a correct record.

RESOLVED:  That the minutes of the meeting held on 19 October 2010, be taken as read and signed as a correct record.

To receive questions (if any) from local residents/organisations under the provisions of Committee Procedure Rule 17 (Part 4B of the Constitution).

RESOLVED:  To note that no public questions were put, or petitions or deputations received at this meeting.

Report of the Corporate Director Finance

The Panel received a report prepared by Hymans Robertson that set out the current issues facing the financial markets and their impact on the fund’s current asset allocation.  The Adviser reported that:

·                    the economy had started to recover with positive returns in all markets, with the exception of Japanese equities markets.  Fears of a double dip recession had been expressed.  However, market analysts felt that a significant rise in inflation was more likely to occur as the government had injected more money into the economy.  This was to minimise the risk of a double-dip recession as seen in the Chinese and US financial markets;

·                    inflation had remained relatively stable and was currently above the Bank of England target.  If inflation were to decline, the government may take further action to minimise debt levels;

·                    the sharp recovery and positive performance in the corporate bonds market had placed the pension fund in a good position.  A number of short term boosts in the performance of gilts (government bonds) had maximised the opportunity for an increase in profits within this market.  The Panel were invited to consider reducing the level of corporate bonds and reinvesting the proceeds into index linked gilts;

·                    the economic outlook for equities had not improved greatly. Company balance sheets were exceptionally strong as a result of an increase in profitability over the past eighteen months to two years.  A key consideration for companies was how to utilise accumulated cash balances.  The Adviser to the Panel noted that equities would experience some volatility with a possibility of a downturn in the short term.  Nevertheless, there was some scope for equities to perform in the medium term;

·                    recovery in the property market had slowed down in terms of capital value of property which had the potential to continue in 2011.  Rental yields continued to remain attractive for long term investors.  It was suggested that the Panel consider an increasing expenditure on properties to return the mandate back to the benchmark. 

In order to maximise returns within the pension fund, the Panel were invited to consider:

·                    returning to the lower end of the equity benchmark range by selling equities in the short term and holding the proceeds in cash or reinvesting in the market;

·                    reviewing bond weightings which had a current ratio of 80/20 for corporate bonds and index linked gilts respectively.  This action would insure the fund against a rise in inflation within the existing portfolio.

In response to questions, the Panel were advised that equities were currently 6% above the lower end of the strategic allocation benchmark.  To protect the portfolio against a downturn and add value to the fund it was suggested that the Panel consider selling equities to move the portfolio back to an underweight position versus the benchmark.  The actual direct cost of implementation was very low compared to the value of the fund.

RESOLVED:  That

(1)               the equity allocation be reduced to 69% and any proceeds be held in cash pending a future report on the  ...  view the full minutes text for item 49.

Report of the Corporate Director Finance

An officer presented a report that outlined the findings from the review of internal and operational controls at investment managers.  The Panel were advised that:

·                    the report had been prepared following a request at the previous meeting on 19 October 2010 where the Panel had noted an audit recommendation relating to existing procedures for safeguarding the pension fund against losses from administrative errors and fraud.  It was felt that assurances were required that the Fund was protected against poor operational controls that could hamper the management of assets, which would potentially result in reduced returns or increased costs borne by the pension fund;

·                    officers would monitor and review the internal controls documentation and additionally visit the offices of key investment managers if a mandate was large or further assurances were required.  An overall assessment of the controls in place would be rated.  Any controls that were deemed inadequate would be reported to the Panel;

·                    a summary of the operational controls employed by individual investment managers would be presented to the Panel on an annual basis.  It was suggested that the report would be presented in quarter 2 in each financial year which would be appropriate;

·                    nine out of ten investment managers used by the Fund had provided audit reports that had positively reported on the design and operation of individual controls within the organisation.  Officers were awaiting a report from the remaining investment manager.

In response to a question by a Member, officers reported that the level of controls employed by investment managers would be monitored.

RESOLVED:  That the report be noted.

To resolve that the press and public be excluded from the meeting for the following items of business, on the grounds that they involve the likely disclosure of confidential information in breach of an obligation of confidence, or of exempt information as defined in Part I of Schedule 12A to the Local Government Act 1972:

RESOLVED:  That the press and public be excluded from the meeting for the following items as they contain information under Part I of Schedule 12A to the Local Government Act 1972, paragraph 3 as they contain information relating to the financial or business affairs of any particular person or the authority holding that information:

Report of the Corporate Director Finance

An officer presented a report that provided an update on the actions taken since the last meeting on 19 October 2010.  In response to a question from a Member, he advised that:

·                    the investment agreement with Aviva had been signed with the transition expected to be finalised within the next six months.  He added that officers would continue to monitor its progress until completion;

·                    proposals to take forward the investment strategy and Statement of Investment Principles (SIP) would be circulated in writing to Members before the next Panel meeting on 17 January 2011;

·                    officers would meet with the London Borough of Croydon to discuss the progress of the tender process following a review of Actuarial and Adviser services to the Panel.

RESOLVED:  That the update be noted.

Report of the Corporate Director Finance

The Panel received a report that requested for the Panel to decide whether the Corporate Director of Finance be authorised to open or close accounts with one of the two custodians to settle transactions and hold title deeds.

RESOLVED:  That the Corporate Director of Finance be authorised to sign any documentation required to open or close accounts at either JP Morgan or Bank of New York Mellon.

Report of the Corporate Director Finance

The Panel considered a report on the performance of Investment Managers and of the overall fund for the quarter and up to the previous three years ending 30 September 2010.  The value of the fund had been adjusted to include the rebalance of the property portfolio that had taken place in October 2010.

The Panel noted that performance of the fund was close to the benchmark in the quarter leading up to 30 September 2010 and outperformed the benchmark by 1% at the one year level.  Officers believed that this could be attributed to the performance of the equity portfolio.

RESOLVED:  That the report be noted.

Report of the Corporate Director Finance

The Adviser to the Panel presented a report on the Wellington Global Value Equity Portfolio to the Panel.  He advised that Wellington were appointed in November 2009 and has appeared on the industry short list of investment managers. Wellington had made a solid start relative to the target since their appointment.  He added that consistency in performance regarding the portfolio should be a long term consideration for the Panel.

RESOLVED:  That the report be noted.

Presentation by Wellington ( 8 pm)

A presentation by Wellington that provided an update on the portfolio since its inception in November 2009 was received by the Panel. Representatives from Wellington reported that:

·                    the portfolio had experienced a 13% increase in return over the last year which outperformed the benchmark by 1.4%;

·                    Wellington sought to maximise the relative growth and dividend yield of the portfolio by purchasing companies at the lower end of the market trading range and maximising the earnings growth and yield to deliver good returns on investment;

·                    investment decisions were supported by strong research results.  Researchers concentrated on the fundamentals of a business as opposed to the value of a company in order to make investment decisions that maximised profits.  Wellington sought to buy the right company in market sectors.  This was confirmed by the performance of stock within the portfolio as it had performed well against the benchmark compared to their peers;

·                    some markets had experienced little growth over the past few years whereas earnings in some markets had been strong.  Nevertheless, it was anticipated that the yield advantage previously experienced in markets would be returned to in the long term.

RESOLVED:  That the presentation be noted.