Agenda and minutes

Surrey Pension Fund Committee
Friday, 10 November 2017 9.30 am

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

Contact: Andrew Spragg  Email: andrew.spragg@surreycc.gov.uk

Items
No. Item

52/17

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

53/17

MINUTES OF THE PREVIOUS MEETING: 15 September 2017 pdf icon PDF 347 KB

54/17

DECLARATIONS OF INTEREST

    All Members present are required to declare, at this point in the meeting or as soon as possible thereafter

    (i)            Any disclosable pecuniary interests and / or

    (ii)           Other interests arising under the Code of Conduct in respect of any item(s) of business being considered at this meeting

    NOTES:

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

    ·         As well as an interest of the Member, this includes any interest, of which the Member is aware, that relates to the Member’s spouse or civil partner (or any person with whom the Member is living as a spouse or civil partner)

    ·         Members with a significant personal interest may participate in the discussion and vote on that matter unless that interest could be reasonably regarded as prejudicial.

    Minutes:

    There were none.

55/17

QUESTIONS AND PETITIONS pdf icon PDF 125 KB

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (Monday 6 November 2017).

    2.  The deadline for public questions is seven days before the meeting (Friday 3 November 2017).

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

     

    Minutes:

    1.    Two questions were received from the public. The response was tabled at the meeting and is attached as an annex to these minutes. The Chairman noted that Sarah Finch had been unable to attend in person. Vicki Elcoate was invited to ask her supplementary question. She commented that the response felt weak, and asked what specific barriers prevented the Fund from entering the Border to Coast Pension Partnership (BCPP) with a clear statement on disinvestment on fossil fuels.

     

    2.    The Chairman commented that the Fund was working with the BCPP around sustainable and responsible investment. It was also highlighted that there was a fiduciary duty to all members of the Fund, and restricting investments could be seen to compromise this. It was noted that climate change was perceived as a risk and that the Fund had a number of active managers who had a position on mitigating that risk.

56/17

ACTION TRACKER pdf icon PDF 91 KB

57/17

FORWARD PLAN pdf icon PDF 50 KB

58/17

EXCLUSION OF THE PUBLIC

    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.

    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 the relevant paragraphs of Part 1 of Schedule 12A of the Act.

     

     

    PART TWO – IN PRIVATE

59/17

INVESTMENT STRATEGY REVIEW

Minutes:

[The Committee took the agenda in a different order to facilitate discussion]

 

Declarations of interest:

 

None

 

Witnesses:

John Harrison, Advisor

Sheila Little, Strategic Director of Finance

Neil Mason, Senior Pensions Advisor

Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

Hemal Popat, Mercer

Steve Turner, Mercer

 

Key points raised during the discussion:

 

1.    The Committee was briefed on a number of options available with respect to future protection of the Fund portfolio. It was highlighted that the Fund was exposed if there was some form of market correction related to equities. The Committee reviewed the options for downside protection with respect to equity through a form of derivative. It was also noted that there were options around alternative indexation with respect to passive investments, and an allocation to long-term illiquid assets.

 

2.    The Chairman informed the Committee that these options had been in response to conversations at the Committee meeting on 17 September 2017 about protecting investments. He expressed the view that these options would be a matter of consideration regardless of the current funding level, and were seen as a way of protecting against market correction. It was noted that equity returns had been strong since the 2008 financial crisis, and that the cost of buying protection were at low levels at the present time.

 

3.    It was commented that the Fund had a large allocation to equities and this had seen an increase in value by £75 million over the previous quarter. The Committee was informed that over £1 billion was invested in UK equities without any protection. Mercer estimated that there one in 20 likelihood of those investments losing 30% of their value through market correction.

 

4.    The Committee was also advised that protection would be considered by the actuary when reviewing measures in place to address a deficit position. This would have a positive impact in respect to the triennial valuation and how the funding level was assessed.

 

5.    A range of questions were asked regarding the technicalities of the protection. The Committee was informed that active investment managers would have some forms of protection against poor investment outturns, though not against an overall market drop. It was clarified that downside protection would not be affected by the move into pooled arrangements with the Border to Coast Pension Partnership (BCPP) as equities would be retained with Legal and General. Clarity regarding the arrangements for equities and pooling was cited as one of the reasons that the paper was being brought to the Committee at this stage. It was noted that East Riding had put protection in place and three other funds in BCPP were considering similar arrangements with Mercer.

 

6.    The Committee was informed that diversifying away from equity market risk would take a long time to implement, and the protection was beneficial as it could be implemented quickly at a minimum cost to the Fund. The Committee debated the extent to which selling upside would protect against downside, and the extent to  ...  view the full minutes text for item 59/17

60/17

PUBLICITY OF PART 2 ITEMS

61/17

REVISED FUNDING STRATEGY STATEMENT pdf icon PDF 125 KB

    Report setting out the revised Funding Strategy Statement following previously approved changes to funding policy.

    Additional documents:

    Minutes:

    [The Committee took the agenda in a different order to facilitate discussion]

     

    Declarations of interest:

     

    None

     

    Witnesses:

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    Hemal Popat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    The Committee discussed whether there should be some adjustment to the wording of the funding objective, in view of the positive performance of the fund. There was strong support for this from the Committee in order to better reflect the position of the Fund, both in respect to its liabilities, actuarial assumptions around its investment returns and the volatility of its portfolio.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    ·         That the Committee adopt the changes to the funding strategy statement.

     

    ·         That the Committee consult with the actuary and investment consultants to consider how the funding objective can reflect the positive performance of the Fund.

62/17

INVESTMENT STRATEGY STATEMENT pdf icon PDF 73 KB

    The pension fund is required to publish an investment strategy statement (ISS) as a result of new investment regulations. It is a statutory requirement that the Pension Fund Committee should approve and regularly review its ISS.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

     

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    Hemal Popat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    Following the discussion of the previous item, the Committee reviewed the wording and agreed a change.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the first paragraph of the objectives of the Investment Strategy Statement is altered as follows –

     

    The Committee seeks to ensure that the Fund has sufficient assets to be able to meet its long term statutory obligations to pay pensions to the Fund’s members, i.e. over the long term to be at or above a 100% funding level.

     

63/17

MANAGER ISSUES AND INVESTMENT PERFORMANCE UPDATE pdf icon PDF 845 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

     

    Witnesses:

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    HemalPopat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    The Committee discussed the options proposed relating to Marathon Asset Management. It was noted that the option to combine in a single pooled fund account was the officer recommendation, and the Committee discussed the different benefits of each arrangement. It was noted that option two would enable investments in India and Chile, both markets that were unavailable under the present arrangement. The Committee commented continuing a performance fee did not represent a substantial incentive to Marathon.

     

    2.    The Committee noted the market value of the Fund’s investments had increased. Members queried whether there were concerns about the performance of Avivia. It was explained that Avivia offered a particular type of diversified growth fund, and the Committee had chosen three diversified growth fund that operated differently in order to diversify its risk exposure. The Chairman commented that it was not a major concern as the overall position for the three funds was positive.

     

    3.    The Committee was informed that the Chairman and officers had attended a joint committee meeting of the Border to Coast Pension Parnership (BCPP) funds on 20 October 2017. The BCPP chief executive officially started in November, and a new non-executive chairman, Chris Hitchen, had been appointed. The Committee noted that Fiona Miller had also been appointed as Chief Operating Officer on the current project group.

     

    4.    The Committee was informed that BCPP had been offered a loan of £4 million starting capital from South Yorkshire Pensions Authority. An update regarding this would be brought to the Committee meeting in February 2018.

     

    5.    Officers commented that all other aspects of setting up the BCPP were on track, including the Financial Conduct Authority application. A preferred option for the BCPP headquarters had been identified in Leeds city centre and the initial priority would be moving staff managing portfolios internally within funds into the BCPP pool. It was also highlighted that the section 151 officers for each administering authority met regularly to discuss progress and any areas of common interest.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    ·         That the Committee note the report

    ·         That the transfer of existing Marathon segregated and pooled accounts to a single pooled fund account is approved, and that an existing asset based fee is applied across the aggregated assets.

     

64/17

PRIVATE EQUITY REVIEW pdf icon PDF 129 KB

    This report is a review of the investment performance of the private equity portfolio.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    HemalPopat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    The Committee reviewed private equity performance, and it was noted that this remained above the target. The Committee was informed that the report did not include Darwin Property Management, as these investments had been recorded in the Fund accounts as property investment following advice from the Fund’s external auditor Grant Thornton.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Committee note the current position on the Fund’s Private Equity investment performance.

     

    That the Fund continue to commit to drawdowns of the existing private equity schemes, and consider new opportunities for approval as and when these arise.

65/17

BORDER TO COAST RESPONSIBLE INVESTMENT AND VOTING GUIDELINES pdf icon PDF 75 KB

    This report provides a summary of the Border to Coast Pensions Partnership (BCPP) Responsible Investment and Voting Guidelines, approved at the Border to Coast Joint Committee meeting held on 20 October 2017.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

     

    Key points raised during the discussion:

     

    1.    The Committee noted that the Border to Coast Pension Partnership had produced new guidelines related to responsible investments. Officers commented that there was no significant change from the Fund’s current responsible investment policy and guidelines. The BCPP committee had approved the document, which was a consolidation of the different Fund investment policies.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Committee approve the BCPP Corporate Governance Voting Guidelines and the BCPP Responsible Investment Policy.

     

66/17

CORPORATE GOVERNANCE SHARE VOTING pdf icon PDF 243 KB

    This report provides a summary of the Fund’s share voting process in Q2 of 2017/18 (1 July 2017 to 30 September 2017).

    Additional documents:

    Minutes:

    [Tim Evans left the meeting at 12.29pm. Ben Carasco continued as Chairman.]

     

    Declarations of interest:

     

    None

     

    Witnesses:

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

     

    Key points raised during the discussion:

     

    1.    The Committee reviewed the Corporate Governance share voting in quarter 2 2017/18. There were no further comments.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Committee note the report.

     

    That the Committee approve the latest versions of the Responsible Investment and Stewardship Policy and Voting Template.

     

     

67/17

ADMINISTRATION ISSUES AND UPDATE pdf icon PDF 220 KB

    This report is a summary of all administration issues that need to be brought to the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    Jason Bailey, Pensions Lead Manager, Business Operations

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    HemalPopat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    The Committee noted that the new performance matrix, which had been agreed at the last meeting, would commence from quarter 3 2017/18 and reported to the next meeting of the Committee. Officers had proposed changes to the reporting cycle that would see the Local Pension Board scrutinising administration performance prior to a highlight report to the Committee.

     

    2.    Officers commented that the service was restructuring the Pension Service management to improve the focus on service delivery. The Committee was informed that there would cost implications to the Fund, though recent benchmarking had estimated that the Orbis Pension Service was the second lowest in terms of cost. The Chairman of the Local Pension Board commented that the current performance presented a mixed picture and that the Board had expressed particular concern around the performance related to deaths, retirements and transfers out.

     

    3.    The Chairman of the Local Pension Board outlined the work the Board had undertaken to review the environmental, social and governance policies of other local authority funds. It was also highlighted that a breach had been reported to the Pension Regulator following the delay in issuing annual benefits statements. It was estimated to have impacted 2% of active members and the majority of deferred members. The Committee was advised that remedial steps had been taken.

     

    4.    The Committee noted the progress report of steps taken since the Pension Administration audit. It was noted that a further progress report would be brought to the Board in January 2018.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Committee note the reports on Key Performance Indicators for the quarter to 30 September 2017.

     

    That the Committee agree to receive a focused summary of the administration Performance Report, produced after scrutiny by the Local Pension Board, in future meetings.

     

    That the Committee notes updates to the monitoring report of the Local Pension Board in respect of the Pensions Administration Audit 2016/17

     

    That the Committee note the comments of the Local Pension Board with regard to defining trigger for de-risking as the funding position improves.

     

    That the Committee note the procurement timetable for the actuarial contract.

68/17

RISK REGISTER 2017-18: PENSION FUND AND ADMINISTRATION pdf icon PDF 121 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

     

    Witnesses:

     

    Jason Bailey, Pensions Lead Manager, Business Operations

    John Harrison, Advisor

    Sheila Little, Strategic Director of Finance

    Neil Mason, Senior Pensions Advisor

    Phil Triggs, Strategic Finance Manager (Pension Fund and Treasury)

    Hemal Popat, Mercer

    Steve Turner, Mercer

     

    Key points raised during the discussion:

     

    1.    The Committee reviewed the risk registers, and there were no substantial changes from the previous quarter.

     

    Actions/ further information to be provided:

     

    None.

     

    Resolved:

     

    That the Committee note the risk registers.

69/17

DATE OF NEXT MEETING