Agenda and minutes

Surrey Pension Fund Committee - Friday, 18 September 2015 11.00 am

Venue: Ashcombe Suite, County Hall, Kingston upon Thames, Surrey KT1 2DN. View directions

Contact: Cheryl Hardman  Email: cherylh@surreycc.gov.uk

Items
No. Item

47/15

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

    • Share this item

    Minutes:

    Apologies were received from Tony Elias.

48/15

MINUTES OF THE PREVIOUS MEETING: 23 July 2015 pdf icon PDF 123 KB

    • Share this item

    To agree the minutes as a true record of the meeting.

    Minutes:

    The Minutes were approved, subject to some minor formatting changes.

49/15

DECLARATIONS OF INTEREST

    • Share this item

    To receive any declarations of disclosable pecuniary interests from Members in respect of any item to be considered at the meeting.

     

    Notes:

    ·         In line with the Relevant Authorities (Disclosable Pecuniary Interests) Regulations 2012, declarations may relate to the interest of the member, or the member’s spouse or civil partner, or a person with whom the member is living as husband or wife, or a person with whom the member is living as if they were civil partners and the member is aware they have the interest.

    ·         Members need only disclose interests not currently listed on the Register of Disclosable Pecuniary Interests.

    ·         Members must notify the Monitoring Officer of any interests disclosed at the meeting so they may be added to the Register.

    ·         Members are reminded that they must not participate in any item where they have a disclosable pecuniary interest.

     

    Minutes:

    There were no declarations of disclosable pecuniary interest.

     

    The Chairman did inform the committee that she had been approved as the English county council representative to the Local Government Pension Scheme Advisory Board.

50/15

QUESTIONS AND PETITIONS

    • Share this item

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (14 September 2015).

    2.  The deadline for public questions is seven days before the meeting (11 September 2015).

    3.  The deadline for petitions was 14 days before the meeting, and no petitions have been received.

     

    Minutes:

    There were none.

51/15

ACTION TRACKING pdf icon PDF 70 KB

    • Share this item

    An action tracker is attached, detailing actions from previous meetings.  The Board is asked to review progress on the item listed.

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    In relation to A21/14 (synthetic equities training), the committee was informed that the results of a training needs analysis did not suggest that synthetic equities was a priority over the next year.  It was agreed to abandon this action.

    2.    In relation to A5/15 (assessment one to ones), the Chairman corrected the tracker, stating that she hadn’t yet spoken to the newest members of the committee Alan Young, Peter Stanyard and Hazel Watson. However, she would do this by the next meeting.

     

    Actions/Further information to be provided:

    None

     

    Resolved:

    That the action tracker was noted and the committee agreed to remove the completed actions from the tracker.

     

    Next steps:
    None.

     

     

    The Chairman informed the committee that she would be reordering the agenda to ensure that the strategic policy issues were discussed first.  Following item 6, the Chairman would move to item 14 Local Pension Board and then item 8 Unitisation of Assets before returning to the order as set out in the agenda.

52/15

CHANCELLOR'S BUDGET: UPDATE pdf icon PDF 286 KB

    The Chancellor of the Exchequer presented his budget to the House of Commons on 8 July 2015. This paper contains a summary of the implications for the Local Government Pension Scheme (LGPS).  

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager (Pension Fund and Treasury) introduce the report, highlighting the likely criteria for pooling and outlining the options for change.  He explained that officers had deliberately not steered the committee towards any particular option because the consultation paper had not yet been published.  However, the committee could give a steer to officers on a preferred option to investigate further.  It was felt that options 1 to 3 would be rejected by the Government as not being ‘sufficiently ambitious’.

    2.    The Surrey Pension Fund Advisor clarified the differences between Collective Investment Vehicles (CIVs) and Joint Vehicles.

    3.    The Chairman highlighted the need to work with like minded Funds with a similar investment philosophy. 

    4.    Members stressed the need to get in early with proposals and negotiate a good deal. 

    5.    The possibility of joining an existing CIV or Joint Vehicle was discussed at length, with officers responding to questions about the London CIV and the London Pension Fund Authority.

    6.    Members pointed out the good governance and investment performance of the Surrey Pension Fund and questioned the benefit of pooling assets.  The Chairman highlighted the benefit of scale allowing the Local Government Pension Scheme to invest in alternatives and be a global competitor.  Local accountability would also be retained, with the main difference to the committee being the loss of being able to choose investment managers.

    7.    Officers informed the committee that extensive networking was underway with regard to how pooling could be taken forward.

    8.    The Surrey Pension Fund Advisor suggested that the committee consider how joint governance will be organised, eg the London CIV has 31 members on its governing board which could be unwieldy.  From the perspective of fund managers, pooling would give them one person to speak to which would potentially lead to reduced fees. 

    9.    Members felt that as the Surrey Pension Fund was well-governed and ambitious for its investment performance, it should be a leader in whichever option it decides to follow and retain a reasonable amount of control.  It was understood that this would require a lot of work.

    10.  The Surrey Pension Fund Advisor explained the need to run-off private equity, liquid assets being easier to pool than illiquid assets.  However, run-off can go on for 20-30 years.
     

    Actions/Further information to be provided:

    None

     

    Resolved:

    That officers undertake further investigation into the options set out in the report, with option 7 being the preferred option, and bring a report back in November 2015 (Recommendations tracker ref: A12/15).

     

    Next steps:
    None.

     

53/15

LOCAL PENSION BOARD pdf icon PDF 117 KB

    The report provides an update on the operations of the Surrey Local Pension Board and a recommendation for the Pension Fund Committee to approve amendments to the terms of reference of the Surrey Local Pension Board.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Senior Advisor (Pension Fund) introduced the report.  He informed the committee that legal advice had just come in stating that there is no impediment to the Chairman of the Local Pension Board having a casting vote.   Therefore, for consistency with the rest of the council’s committees, it was recommended and agreed that the following should be added to paragraph 4.1.2 of the Terms of Reference:

    “If consensus is not reached, the Chairman to have a second or casting vote”.

    2.    The Chairman suggested that the Local Pension Board minutes should include a list of those in attendance throughout the meeting (Recommendation tracker ref: A13/15).

    3.    The Vice-Chairman of the Local Pension Board was invited to speak and he stressed the steep learning curve and requested that joint training sessions be arranged for the future.  He also informed the committee that he hoped to have more members of the Board observing committee meetings in future.  The Chairman suggested that training sessions be held on separate days to the committee meetings in future but stressed that this should not result in decreased attendance at training. It was suggested that members of the committee could discuss the strategic approach to investment during these separate sessions.

     

    Actions/Further information to be provided:

    Local Pension Board minutes to include a list of those in attendance throughout the meeting.

     

    Resolved:

    That the Surrey Pension Fund Committee:

    1.    Notes the report; and

    2.    Approves amendments to the terms of reference of the Local Pension Fund Scheme, including the addition reported above.

     

    Next steps:
    None.

     

     

54/15

UNITISATION OF ASSETS pdf icon PDF 159 KB

    The report explains the need for an alternative, more sophisticated, robust allocation of fund assets to scheme employers.

     

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Senior Advisor (Pension Fund) and the Hymans Actuary introduced the report, explaining the benefits of asset unitisation for the Surrey Pension Fund.

    2.    The Hymans Actuary clarified that the proposals would not result in a shift of the investment strategy.

    3.    In response to a question on whether the impact on employers had been modelled, the Senior Advisor (Pension Fund) stated that this was underway. 

    4.    The committee discussed whether unitisations would result in the removal of cross-subsidy, pushing less stable employers into default.  Officers suggested that unitisation offered clearer transparency, allowing the Scheme Manager to identify problems earlier and if necessary work with weak employers to exit the Scheme.  At present, the three year valuation identifies problems only once employers are already in deficit.  Some members were still concerned that if weaker employers default this would result in the rest of the Fund having to pay the debt.

    5.    The Senior Advisor (Pension Fund) explained that the classification of employers as large and secure, other well-funded, or poorly-funded was decided by the Scheme Manager, in consultation with employers. 

    6.    The Hymans Actuary informed the committee that initially unitisation would require a lot of work and therefore resource.  There was also the possibility of employers rejecting the investment strategy identified for them.  However, the majority would be happy with what is set.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee:

    1.    Notes the benefits that asset unitisation would bring to the Fund in order to support a focused employer funding and investment strategy; and

    2.    Approved in principle the future implementation of asset unitisation and request officers to work with the Fund’s actuary towards its implementation with effect from 1 April 2016 (the effective date of the next actuarial valuation), and subject to the actuary’s final report being approved by the Committee.

     

    Next steps:
    A further report to be brought to committee at a future meeting.

     

     

    The committee adjourned from 12.30pm to 1.15pm for lunch.

     

     

     

55/15

MANAGER ISSUES AND INVESTMENT PERFORMANCE pdf icon PDF 862 KB

    This report is a summary of all manager issues that need to be brought to the attention of the Pension Fund Committee, as well as manager investment performance.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report, highlighting key issues.

    2.    The Independent Advisor introduced the Financial and Performance Report and suggested that the success rate of the committee in choosing investment managers had been good.  He then went on to introduce the notes from meeting with Fund Managers.

    3.    Members discussed the flexibility of mandates agreed for Fund Managers.  It was felt that active managers should be requesting changes to mandates if they feel they have become restrictive.

    4.    The Surrey Pension Fund Advisor explained that Franklin Templeton was expected to depart from their benchmark with the expectation of a positive absolute return.

    5.    Information provided by CBRE on cash flow would be circulated to the committee (Recommendations Tracker ref: A14/15).

    6.    With regard to the Self-Assessment Results, it was suggested that some Members had requested more meetings because agendas were long and issues complex.  This would hopefully be addressed by holding training on separate days.  It was also suggested that members of the committee should meet informally without officers or advisors. 

     

    Actions/Further information to be provided:

    Information provided by CBRE on cash flow to be circulated to the committee.

     

    Resolved:

    That the Surrey Pension Fund Committee:

    1.    Notes the report.

    2.    Delays consideration of infrastructure as a future strategy for the Fund until the Government provides clarity over proposed pooling of assets.

     

    Next steps:
    None.

     

56/15

KEY PERFORMANCE INDICATORS AND ADMINISTRATION UPDATE pdf icon PDF 204 KB

    In line with best practice, Surrey Pension Fund Committee members will be supplied with Pension Fund key performance indicators (KPIs) on a quarterly basis, covering investment and administration practices. This paper also includes an update on administration issues.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Senior Advisor (Pension Fund) introduced the report and highlighted a new category showing the number of active employers in the Surrey Pension Fund. 

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee notes the report.

     

    Next steps:
    None.

     

     

57/15

SURREY PENSION FUND ACCOUNTS 2014/15 pdf icon PDF 127 KB

    This report presents the audited financial statements of the Pension Fund for the year ended 31 March 2015, with respect to the County Council’s obligations as the administering authority under the Local Government Pension Scheme (LGPS) Regulations.

     

    The external auditor (Grant Thornton) has issued an unqualified opinion on the accounts and this is outlined in the Audit Findings for Surrey Pension Fund Report.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Senior Accountant introduced the accounts and the audit findings.

    2.    It was queried why Note 24 had been signed off by the actuary.  The Deputy Chief Finance Officer explained that the sign off used to be removed from the Note but the external auditor had advised that this should be retained. 

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee:

    1.    Notes and approves the financial statements.

    2.    Notes the content of the Audit Findings for Surrey Pension Fund Report.

    3.    Notes the Letter of Representation.

    4.    Notes the External Auditor’s Report.

     

    Next steps:
    None.

     

     

58/15

REVISED STATEMENT OF INVESTMENT PRINCIPLES pdf icon PDF 122 KB

    With adjustments to asset allocation within the Pension Fund following the appointment of a multi asset credit manager, it is necessary for the Pension Fund Committee to approve a revised Statement of Investment Principles (SIP).

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee:

    1.    Approves the Revised Statement of Investment Principles.

    2.    Notes the existing Core Belief Statement.

     

    Next steps:
    None.

     

     

59/15

PENSION FUND RISK REGISTER pdf icon PDF 120 KB

    Surrey County Council, as administering authority for the Surrey Pension Fund, is responsible for the delivery of benefit promises made to members of the Surrey Pension Fund. It achieves this by setting objectives and goals with varying timeframes. Risks lie in failing to meet the intended goals.

     

    Risks that are established as an issue must be identified and evaluated via a risk register. The risks must be prioritised with existing controls or new controls

    implemented to mitigate the risks. This should be recorded in a risk register, which should be monitored on a quarterly basis.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report and highlighted the new entry at number 25 regarding the Local Pension Board.  He also informed the committee that, following suggestions at the previous meeting that the risk score regarding uncertainty about possible UK withdrawal from the EU was too high, the score had been reduced.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee notes the revised Risk Register.

     

    Next steps:
    None.

     

     

60/15

CORPORATE GOVERNANCE SHARE VOTING pdf icon PDF 256 KB

    This report provides a summary of the Fund’s share voting process in Q1 2015/16.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report, highlighting that it had been a very busy period.

    2.    Members asked, with regard to times when we had voted against management on remuneration, whether we knew what action had been taken.  The Strategic Finance Manager (Pension Fund & Treasury) explained that it was unlikely that a majority had voted against management.  The Fund’s vote is just registered as a mark of protest.  However, the Chairman pointed out that the Surrey Pension Fund was also part of the Local Authority Pension Fund Forum which gives it greater influence.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Surrey Pension Fund Committee notes the report.

     

    Next steps:
    None.

     

     

61/15

EXCLUSION OF THE PUBLIC

    • Share this item

    Recommendation: That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information under the relevant paragraphs of Part 1 of Schedule 12A of the Act.

     

    PART TWO

    IN PRIVATE

    Minutes:

    RESOLVED: That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information under paragraph 3 of Schedule 12A of the Act.

62/15

PRIVATE EQUITY INVESTMENT PERFORMANCE REVIEW

    The Surrey Pension Fund has a commitment to invest 5% of the fund in private equity. This is achieved by investing in funds of funds and directly managed funds, managed by a number of private equity specialists.

     

    The Surrey Pension Fund Committee reviews the private equity strategy. This report is a review of the investment performance of the private equity portfolio and a comparison of the cost effectiveness of investing in a Fund of Funds with investment in other private equity opportunities.

     

Minutes:

It was agreed to take item 17 next as Peter Stanyard would be leaving shortly.

 

Declarations of interest:

None.

 

Key points raised during the discussion:

1.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report.  The committee asked a number of questions which were responded to by the officers present, before moving to the recommendations.

 

Actions/Further information to be provided:

None.

 

Resolved:

That the Surrey Pension Fund Committee:

      i.        Notes the current position on the Fund’s Private Equity investment performance.

     ii.        Continues to commit to draw downs of the existing private equity schemes, and submit new opportunities to the Surrey Pension Fund Committee to consider.

 

Next steps:
None.

 

 

 

63/15

PENSION FUND COST BASE: DEEP DIVE REVIEW

Minutes:

The committee’s external advisors, the Surrey Pension Fund Advisor, the Mercer representative and the Hymans actuary, left the meeting at 2pm prior to the start of the committee’s consideration of item 16.

 

Declarations of interest:

None.

 

Key points raised during the discussion:

1.    The Chairman thanked Stuart Selleck and Tim Evans for this work on the review.

2.    The Strategic Finance Manager (Pension Fund & Treasury) introduced the report and tabled some further information, attached as a confidential annex to the Minutes.

3.    The committee asked a number of questions which were responded to by the officers present.

 

Peter Stanyard left the meeting at 2.25pm, while the discussion was ongoing.

 

4.    The Strategic Finance Manager (Pension Fund & Treasury) reminded the committee that the Fund’s investment consultancy will shortly be subject to tender review under the LGPS National Frameworks portal and it was suggested that a shortlist would be brought to committee in due course at a special meeting (Recommendation tracker ref: A15/15).

 

 

Actions/Further information to be provided:

A shortlist of investment consultants would be brought to committee in due course at a special meeting.

 

Resolved:

That the Surrey Pension Fund Committee:

      i.        Notes the report.

     ii.        Approves the proposed, revised fees reference the investment managers of the pension fund.

 

Next steps:
None.

 

 

 

64/15

PUBLICITY FOR PART TWO ITEMS

    • Share this item

    To consider whether the items considered under Part 2 of the agenda should be made available to the Press and the public.

     

     

    Minutes:

    RESOLVED: That items considered under Part 2 of the agenda should remain confidential and not be made available to the press and public.

65/15

DATE OF NEXT MEETING

    • Share this item

    The next meeting of the Surrey Pension Fund Board will be on 13 November 2015.

    Minutes:

    The date was noted.