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 the attendance at this meeting of the following duly appointed Reserve Member:-

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 – Investment Strategy Options and Agenda Item 12 – Investment Manager Review

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 13 – INFORMATION REPORT – Update Report & Action Points from the Previous Meetings

Councillor Stephen Wright declared a personal and prejudicial interest in that he was a Governor at Canons High School and his wife was employed by Harrow Council as a teacher.  He left the room whilst the matter was considered and voted upon.

That the minutes of the meeting held on 24 May 2011 be taken as read and signed as a correct record.

RESOLVED:  That the minutes of the meeting held on 24 May 2011, be taken as read and signed as a correct record subject to the following amendment:

Declarations of Interest

Agenda Item 11 – Tender for Investment Consulting Services

Mr Howard Bluston declared a personal interest in that he had worked closely with the Aon Hewitt team based in St. Albans as a Committee Member of the North London Group of the National Association of Pension Funds.

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 of the Adviser that set out Investment Strategy Options for their consideration.  Following their appointment, Aon Hewitt had reviewed the current strategy in light of the actuarial position, status of the scheme and projected developments in the financial markets. The Panel noted that most Local Government Pension Funds had large funding deficits. The current strategic asset allocation for Harrow was capable of generating a high investment return in the long term and achieving the returns required to pay the pension liabilities.

A representative from Aon Hewitt outlined areas in which the strategy could be enhanced, and reported that:

·                    the long term consideration for the existing strategy was whether the liabilities of the fund could be met by employee contributions or investment returns;

·                    the current strategy relied mainly on investment returns to meet pension liabilities and although this was expected to limit increases in employer contributons, it would increase volatility within the fund;

·                    replacing the passive equity mandate with an active approach and increasing the performance targets for global equity managers would result in a higher expected return and improve the probability of achieving an actuarial discount rate;

·                    widening the range of asset classes within the fund would provide diversity within the existing strategy and could protect the fund against inflation and other associated investment risks;

·                    existing governance arrangements for decision-making should be reviewed including alternative approaches to monitoring the activities of appointed fund managers.

·                    Appropriate training sessions should be offered to the Panel to ensure that they had a comprehensive understanding of investment principles before making any changes to the strategy.

RESOLVED:  That:

(1)               the report be noted;

(2)               Aon Hewitt prepare a briefing note outlining proposals to improve the current investment strategy.

Report of the Interim Director Finance.

An officer presented a report that set out the draft Pension Scheme Accounts to 31 March 2011.  Members noted that:

·                    the external Auditors, Deloitte, were currently auditing the accounts and the final opinion was expected in the next few weeks.  Their report on the annual accounts would be presented at the Governance, Audit and Risk Management Committee meeting on 6 September 2011;

·                    75% of the aggregate expenses incurred by the pension fund were fund manager fees which were charged directly to the pooled fund. In future years, officers would seek to benchmark these costs with industry average expense levels.

RESOLVED:  That the draft pension fund accounts 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 for the reasons set out below:

Report of the Interim Director Finance.

The Panel received a presentation from a representative of WM which set out the performance of the pension fund over 1, 3 and 5 years.  Members were advised that:

·                    in the year ended 31 March 2011, the fund had provided a return of 9% which was 0.3% above the benchmark.  The positive result had placed the fund in the top 25% of local authorities for the second consecutive year;

·                    the positive return could be attributed to the selection of stock and the resulting performance by some fund managers.  The balance of different asset classes within the fund had generated a small negative return;

·                    up to 31 March 2011, the average local authority generated returns over 8%.  The long term view was that the performance of the fund had lagged the benchmark over 5 and 10 years.  It was anticipated by some investors that the equity market would generate lower than expected returns in the immediate future and some pension schemes had as a consequence considered moving away from equities and investing in alternative markets, such as, currency and hedge funds;

·                    following the Hutton review on local government pensions, the Panel should also consider whether the existing governance arrangements of the pension fund could be enhanced.

RESOLVED:  That the presentation be noted.

Report of the Interim Director Finance

A representative from Aon Hewitt presented a report that reviewed how the pension fund was managed by the appointed fund managers and their ability to achieve the target return.

The representative advised that:

·                    Aon Hewitt formally rated fund managers every quarter and met with them at least once a year.  All fund managers had received a copy of the Aon Hewitt report before the meeting and had the opportunity to address any issues within the report;

·                    the performance of fund managers was rated on a scale of 1 (below average) to 5 (above average).  Two of the most important considerations related to staff turnover and risk management.  Some fund managers were “strong” in some categories and “weak” in others.  The total scoring currently rated six of the nine fund managers as “buy” or “hold” and the remaining three were “unrated”;

·                    at present, the active currency products were hugely volatile and did not perform well in relation to other funds.  Members might wish to review the structure of the existing active currency mandate at a future meeting. 

In response to questions, the representative from Aon Hewitt reported that meetings with the three unrated fund managers had been arranged.  Aon Hewitt would advise the Panel of the outcome of these meetings.

RESOLVED:  That the report be noted.

Report of the Interim Director Finance

An officer provided an update on the actions agreed at previous Panel meetings.  He reported that:

·                    discussion on the legal documentation to complete the appointment of the Investment Adviser to the Panel was underway;

·                    proceeds from the sale of short term equities continued to be held in cash.  Officers would present a report on the options available to the Panel at a future meeting.

RESOLVED:  That the update be noted.

Report of the Interim Director Finance

The Panel received a report that set out the valuation of the Pension Fund as at 31 May 2011.  The valuation at the end of May was £3.4 million above the March valuation of the fund.  An officer reported that the valuation of the fund as at 30 June 2011 was £477.1 million.

RESOLVED:  That the valuation of the pension fund be noted.