Agenda item

Report of the Director of Finance.

The Committee received a report of the Director of Finance, which provided an update on the development of the pooling arrangements and the London CIV (Collective Investment Vehicle), and invited comments on the Fund’s draft submission to the CIV as part of its submission to DCLG (Department of Communities and Local Government) by 15 July 2016.

An officer highlighted:

·                     the main conclusions arising from the Harrow Review, as set out in paragraph 8 of the report, which included the returns and associated costs;

·                     that the DCLG tended to communicate with embryonic pools rather than individual administering authorities.

The officer circulated two pages titled ‘London CIV – Individual Borough Response’ setting out an updated version of the London Borough of Harrow response.  The officer referred to the circulated pages and sought comments on the summaries.  He added that he had liaised with Colin Cartwright (Aon Hewitt) and Colin Robertson (Independent Adviser) in this regard and reported as follows:

·                     the assets on page 1 as at 31 March 2015 showed an amount of Liquid Assets of £653.383m and Illiquid Assets of £21.462m, comprising those assets which ought to remain outside the CIV.  In terms of the transition timeline for individual funds, 44% of the Harrow Fund would be invested in the CIV by the end of 2016 and 58% by the end of 2018.  The officer explained that this was an aspiration but there was a need to be satisfied with the opportunities available;

·                     page 2 of the circulation showing ‘Indicative Sub-Funds Available on CIV’ had been produced by the CIV and there was concern as to whether sufficient opportunities would be available for all Funds.  In 2016, officers were led to believe that the CIV would let the contract to Longview;

·                     if Longview sub-fund was set up in 2016, the transition would be straightforward.  Transition costs would be low during the first year.  An opportunity for transition from Oldfields could arise in 2018;

·                     a satisfactory emerging markets fund needed to be available before any transition from GMO could be considered;

·                     if funds became available in 2016, it would be possible to carry out the transition from State Street Global Services.  Colin Cartwright (Aon Hewitt) reported that various Funds were being negotiated. 

Colin Robertson (Independent Adviser) reported that the issues were wide and that only three funds were available currently.  It was not possible to progress as Fund Managers were unknown.

Members noted that there were no alternatives except for a full or 90% of transition of asset management to the CIV by 2020.  Significant transition was expected by 2018 or, possibly, earlier by 2017 but it was a moving feast.  The Secretary of State could intervene if the government was not satisfied with the Council’s performance.  There would not be any constraints on the management of the Strategy but constraints would exist on the Manage Strategy.  The Asset Class Strategy was the more important of all the strategies.  Any influence on the CIV would be through the Joint Committee which currently consisted of 32 Member authorities but might increase to 33.  A view was that the CIV ought to offer Funds that were acceptable to Harrow.

Richard Romain (Independent Adviser) asked if the investment structure would need to change and enquired about the soft/hard close methodology.  He commented that the Pension Fund Strategy was risk averse and his message to Members of the Committee was that they needed to choose a strategy which fitted in with its complementarity.

Colin Cartwright (Aon Hewitt) advised that changes in Fund Managers could be made at any time and that such changes would incur transition costs but that it ought to be a judgement call.  The majority of the assets for the next few years fitted in with complementarity set.  It was intended that the Investment Strategy would be retained and that it would be for the CIV to ensure that Harrow’s Fund was not being constrained.  In relation to exercising a choice for a Global Equity Manager, it was expected that the CIV would identify the best managers and present them per se having carried out various checks, such as monitoring and negotiations on bulk buying.  Members expressed concern about the CIV’s direction of travel and expressed uncertainty.

Members returned to the papers circulated at the meeting and were generally satisfied with the draft response and

RESOLVED:  That the report be noted, including the comments set out in the additional pages circulated at the meeting except that page 1 of the papers circulated be amended to read:

“Subject to suitable investment products being available the timeline we envisage is, by the end of 2016, 44% of our Fund being invested in the CIV, by the end of 2018, 58% and by the end of 2020, 96%.  Subject to meeting our strategic objectives, we may/should consider putting up to 10% of our Fund in infrastructure investments, including local developments, but we are likely to prefer long term debt infrastructure rather than start up equity”.