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 Panel;

(b)               all other Members present.

RESOLVED:  To note that the following interests were declared:

Agenda Item 7 – Review of the Pension Funds Investment Strategy and Agenda Item 12 – Investment Manager Monitoring

Councillor Thaya Idaikkadar declared a personal interest in that he received pension payments from Aon Hewitt who were appointed by his broker.  He would remain in the room whilst the matter was considered and voted upon.

Howard Bluston declared a personal interest in that he attended meetings of the National Association of Pension Funds at the Aon Hewitt offices in St. Albans.  He would remain in the room whilst the matter was considered and voted upon.

Agenda Item 7 – Review of the Pension Funds Investment Strategy

Bob Thomas declared a personal interest in that he was in receipt of a pension but was attending the meeting in his capacity as a Trade Union Observer.  He would remain in the room whilst the matter was considered and voted upon.

That the minutes of the meeting held on 25 July 2011 be taken as read and signed as a correct record.

RESOLVED:  That the minutes of the meeting held on 25 July 2011, be taken as read and signed as a correct record subject to the following amendment:

Bullet point 2 of Minute Item 105 be amended to read:

·                     the performance of fund managers was rated on a scale of 1 (below average) to 4 (strong) ..

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 Interim Director, Finance

The Panel received a report that proposed a new strategic allocation involving a reduction in the allocation to listed equities with the aim of reducing the volatility of the fund and increase the probability of achieving the return target set by the Actuary to achieve full funding.  The Panel were advised that the primary objective of the fund was to meet the costs of pension benefits.  This would be achieved by maximising performance so as to minimise the level of employer contributions, subject to an appropriate level of risk.  Aon Hewitt recommended that the Panel consider moving towards an asset allocation strategy that improved the Pension Fund’s ability to maintain stable employer contributions in the future by reducing the overall risk relative to liabilities and avoid the need for higher employee contribution rates.

The existing strategy was capable of meeting the funding objectives currently set. Following a request from the Panel meeting on 25 July 2011, Aon Hewitt had investigated opportunities that would enhance the current investment strategy.  Aon Hewitt had prepared a range of alternative strategies for investment and recommended a model that would improve the long term position of the fund by diversifying the current asset classes of the fund which would provide a slightly lower level of return with greater efficiencies.  The first stage of the recommendation was to reduce the fund’s exposure to equities and remove the active currency allocations in order to increase the allocations to index linked bonds and property.  It was felt that this would deliver substantial long-term benefits to the Fund.  The recommendation would also require fewer fund managers.  To facilitate these changes, an interim strategy that would help in achieving the desired outcomes was proposed.  It was noted that the Panel might wish to undertake further training and analyse the fund before a new investment strategy was approved.

Members were of the view that it was not their role to consider liabilities and that they should concentrate on maximising the investment return and were prepared to consider greater risk than the strategy proposed by Aon Hewitt.

Members noted the information presented in the report and had a full debate on alternative options that delivered greater levels of return.

RESOLVED:  That Aon Hewitt prepare a revised report on the investment strategy that took into account the Panel’s return objectives and increased the tolerance of risk assumed in the report.

Report of the Interim Director, Finance

An officer presented a report issued by Deloitte LLP to the Governance, Audit and risk Management (GARM) Committee regarding the work undertaken in reviewing the pension fund annual accounts together with finding and recommendations.

Members were requested to note the following:

·                     the external Auditor had made two recommendations in relation to the Pension Fund accounts and the Statement of Investment Principles (SIP).  In relation to the Pension Fund, the external Auditor had recommended that the fund’s cash balances should be separated from those of the Council to bring it in line with Local Government Pension Scheme regulations.  In relation to the SIP, the external Auditors had recommended that it be updated to include the investment ranges and rebalancing policy that was approved by the Panel in 2010.  Officers advised that this would be done following completion of the strategy review;

·                     Deloitte LLP had completed a number of tests on the level of risk in relation to private equity investments.  It was found that private equity investments amounted to £21.6 million, which represented 4.7% of investments.  This was above the 3% benchmark set by the SIP. It was noted that this was a control observation;

·                     Deloitte LLP had concluded that the assumptions used by the Council in calculating pension liability were within an acceptable range, based on the benchmarking for other 31 March 2011 bodies.

Members noted that transactions relating to the pension fund continued to be processed through the Council’s bank account.  They expressed concern in the delay that transactions directly from the pension fund could not take place until an IT upgrade had been completed.

The Chairman thanked finance officers and all those involved in preparing the accounts.  He commended them on the positive outcome in relation to the report provided by the external Auditors.

RESOLVED:  That the report be noted.

Report of the Interim Director, Finance

The Panel received a report that invited the Panel to consider their training needs and how they could be addressed in response to the Myners Principles and subsequent Chartered Institute of Public Finance and Accountancy (CIPFA) guidance.  He reported that there was also a requirement to disclose the level and type of training provided to Members in the Council’s accounts.  He added that officers would provide Members with guidance on the types of training available to the Panel and support them in tailoring a training programme that was to their individual needs.

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 in accordance with Part I of Schedule 12A to the Local Government Act 1972, the press and public be excluded from the meeting for the following items for the reasons set out below:

Report of the Interim Director, Finance

The Panel received a report that outlined the results of a fund manager review completed by Aon Hewitt following their appointment.  The report outlined their comments in relation to the fund managers’ ability to achieve the target returns set by the Panel.

The Adviser to the Panel reported that:

·                     Aon Hewitt had three product specific investment manager ratings, which were, Buy, Sell and Hold;

·                     Three out of the four fund managers who had been unrated at the last meeting now had been assigned ratings.  There was a recommendation to terminate the mandate managed by a particular fund manager as it did not appear to add value to the fund and there was a low degree of confidence in them achieving their long term objective;

·                     One mandate was still unrated.  A preliminary review completed by Aon Hewitt highlighted concerns in relation to the resources, processes and performance required to support the mandate and the level of fees paid.

The Chairman thanked the representative from Aon Hewitt for his comprehensive and informative report.

As a result of the presentation and discussion by Members, it was

RESOLVED:  That

(1)               the active currency mandate with BNY Mellon be terminated immediately;

(2)               the Aon Hewitt report in relation to Fidelity be noted and no further action be taken at this stage.

Report of the Interim Director, Finance

An officer presented a report that set out the performance of the investment managers and of the overall fund for the quarter, year and three years ending 30 June 2011.  He reported that the fund was subject to movements in the equity market and the relative performance of fund managers was slightly below the benchmark for the total fund over three years.  He added that comparisons against peers was dependent on performance in the equity markets because the level of equity in the fund was higher that average.

In response to questions raised by the Panel, the Adviser and officers reported that the reports were prepared on a quarterly basis following consultation with fund managers.  Aon Hewitt advised officers of all key developments within individual mandates.

RESOLVED:  That the report be noted.

Report of the Interim Director, Finance

The Panel received a report that set out a review of the process for monitoring the effectiveness of the operational controls at investment managers following a recommendation in the external Auditors report on the 2010 accounts.  An officer outlined some areas of operational concern in relation to individual fund managers and action that would be taken to address specific weaknesses.

RESOLVED:  That the report be noted.

Report of the Interim Director, Finance

An officer presented a report that provided an update on the actions taken from prior meetings and since the last meeting.

The Panel noted the progress made in relation to some of the actions.

RESOLVED:  That the report be noted.

Vote of Thanks

A Member noted that this was last meeting of the Clerk to the Committee as she had been offered a new role in the Legal Practice Team.  He thanked her for all the support she had provided to himself as former Chairman to the Panel and on behalf of other Members.  He added that her guidance provided in the administration and decision-making of the Panel was invaluable.  Other attendees concurred and the Chairman thanking her for the support that she had provided him since his appointment in 2010.  Officers and attendees wished her all the best in her future career.