Agenda and minutes

Surrey Pension Fund Committee
Friday, 8 June 2018 10.00 am

Venue: Members Conference Room, County Hall, Kingston upon Thames, Surrey KT1 2DN

Contact: Sharmina Ullah  Email: sharmina.ullah@surreycc.gov.uk

Items
No. Item

26/18

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

27/18

MINUTES OF THE PREVIOUS MEETING 26 MARCH 2018 pdf icon PDF 199 KB

28/18

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.

29/18

QUESTIONS AND PETITIONS pdf icon PDF 68 KB

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (4 June 2018).

    2.  The deadline for public questions is seven days before the meeting (1 June 2018).

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

     

    Minutes:

    1. Members of the public noted the response to questions submitted which are attached to the minutes as Annex A. The questioners asked the following supplementary questions in response:

      1. Cllr Jonathan Essex, on behalf of Sarah Finch: Please can the Committee request the LAPFF confirm what transition plans exist for oil and gas investments to a 1.5C warming scenario and provide evidence that this approach has delivered a reduction in carbon exposure to date.

      2. Question By Sally Elias: It was noted that other comparable funds and organisations were looking at disinvestment in fossil fuels. Does the Surrey Pension Fund invest in Suncor with its tar sands interests and what does it take to convince the Committee to take your funds out of such an environmentally damaging business?

      3. Question by Vicki Elcoate: I understand that Surrey CC Pension fund has over £45m invested in BP. Are Pension Fund members aware that BP holds nearly a 20% stake in Russian state oil company Rosneft and sits on its board? This is despite the Russian oil giant having one of the world's worst records on safety and spills. It also no longer seems very sound in terms of investment to have your pension fund associated with the Russian regime. What does it take to convince the Board that the fossil fuel business involves dirty money and it’s time to get out?

      4. Question by Janet Baker on behalf of Pat Horitz:

        On the question of fiduciary responsibility, would the SPF committee bear in mind that the increasing support for moving investments out of fossil fuels and into Socially Responsible Investments and that investment in SRIs is bringing healthy returns capable of outperforming conventional investments?

    e.    Question by Stephen McDonald: I referred firstly to an extract from a LAPFF report produced in conjunction with Carbon Tracker which states in its’ introduction, “most oil companies seem to plan their business on the assumption that the action on climate change needed to deliver a 2deg C scenario will not emerge in the foreseeable future”
    I added, “the SPF know this only too well as the Shell website reveals some 21 new fossil fuel extraction projects supported by c. £ 60 million of Surrey Pension Fund investments”
    My question was, “If we assume that the Pension Fund Trustees supported by a range of different Pension professionals are aware of the outcomes of their investment decisions, could the committee tell me what is the environmental outcome of the £ 130 million currently invested in the fossil fuel industry?”
    It would make the point that an environmental outcome would be expressed in environmental terms; temperature, flooding, extreme weather events, sea level rise, ecosystem breakdown etc.
    This question was not answered in section 4 of the meeting (questions and petitions) and was referred forward to the carbon asset exposure review section. Nor was in answered in this section.

     

    It was noted that a response to these supplementary questions would be provided in writing after the meeting and attached to  ...  view the full minutes text for item 29/18

30/18

FORWARD PLAN AND ACTION TRACKING pdf icon PDF 98 KB

31/18

PENSION FUND BUSINESS PLAN 2017/18: OUTTURN REPORT pdf icon PDF 340 KB

    Purpose of the report: The 2001 Myners Report (later confirmed by the CIPFA/Myners Principles) recommended that local authority pension funds approve an annual business plan in respect of the objectives required for the ensuing year. Business planning is regarded as an important tool, assisting in the identification of how service delivery can be maximised within resource constraints. This report sets out the outturn of the annual business plan for 2017/18.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    Neil Mason, Head of Pensions

     

    Key points raised during the discussion:

     

    1. Members noted the report and provided their congratulations to the pensions team for their achievements and progress on the Business Plan objectives.

     

    Resolved:

     

    That the Committee:

     

    1.   Noted the achievements and progress made with regard to the Business Plan objectives shown in Annex 1 in respect of the 2017/18 financial year.

     

32/18

CARBON ASSET EXPOSURE REVIEW pdf icon PDF 239 KB

    Purpose of the report: To understand the Surrey County Council Pension Fund’s current exposure to assets which are carbon intensive in their activities and how a future reallocation of the Fund’s equities will impact its current Carbon Asset exposure.

     

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    Neil Mason, Head of Pensions
    Neil McIndoe, Trucost
    Yohan Hill, Trucost

     

    Key points raised during the discussion:

     

    1. Officers introduced the report and a presentation from representatives from Trucost was given to provide the committee a breakdown of the carbon asset exposure of the fund.

    2. The representatives from Trucost explained that they had undertaken similar benchmarking work with 20 other Local Government Pension Schemes (LGPS) to ascertain the risk of climate change and carbon related assets. It was noted that all data used was within two years of the current date to ensure relevance.

    3. Members questioned the how Trucost calculated carbon footprint of organisations invested in by the fund. Trucost representatives explained that emission rates disclosed by companies was used in calculations, but noted that in cases where this data was not available, rates were modelled using well established methodology.

    4. Members asked whether the carbon footprint of the final product of oil and gas companies was included as part of the footprint. Trucost representatives noted that this was not included but that the use of the end product was included in other company footprints.

    5. It was noted that oil, gas and materials companies that were invested in by the Surrey Pension Fund had a significant carbon apportionment in the funds investments.

    6. Members queried whether the information presented by Trucost regarding carbon footprint impact could be analysed alongside the performance of investments. Officers noted that this comparison would be included as part of future Investment Manager Reports to the Committee to allow analysis and determine the appropriateness of the investments.

    7. Members questioned benchmarks relating to investment in high carbon footprint industries and whether there was a potential for increasing the thresholds for benchmarks to reduce investments in high carbon footprint assets. Advisors noted that there were different benchmarks that could be utilised to encourage this that the service could employ.

    Resolved:

     

    That the Pension Fund Committee:

    1. Noted the report

     

     

     

33/18

EQUITY STRATEGY REVIEW pdf icon PDF 427 KB

    Purpose of the report: The Investment Strategy Statement of the Surrey Pension Fund currently shows a target allocation of listed equities at 59.8% of the portfolio.

     

    The Fund is scheduled to begin transition of its assets in to the Border to Coast (BCPP) asset pool in the 3rd-4th quarters of 2018, starting with UK equities. In consideration of the appropriateness of Fund’s asset allocation in line with this key transition date, an investment strategy meeting was convened between the Chairman of the Pension Fund Committee, Mercer, the Fund’s Independent Advisor and officers on 19 January 2018.

     

    As a result of this meeting Mercer produced the Equity Strategy Forward and, at the Pension Fund Committee meeting of 9 February 2018, it was resolved by the Pension Fund Committee to approve further work from Mercer, the Fund’s Independent Advisor and officers to consider the following, in accordance with the Equity Strategy Forward plan:

     

    ·         the balance between UK and global equities;

    ·         the balance between passive and actively managed equities;

    ·         the allocation within the passive section of the portfolio, what allocation should be made to the RAFI multi-factor index and whether an allocation should be made to a low carbon equity fund.

     

    Further meetings to consider these agreed areas were held between the Chairman of the Pension Fund Committee, Mercer, the Fund’s Independent Advisor and officers on 17 April 2018 and 15 May 2018 and conclusions from these meetings inform this report.

     

    This strategic approach to managing the portfolio will continue to be critical after assets begin to be transitioned to BCPP and should be considered within the context of this transition.

     

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:

    Neil Mason, Head of Pensions
    Steve Mitchell, Mercer
    Anthony Fletcher, Allenbridge

     

    Key points raised during the discussion:

     

    1. Advisors noted that the Committee was required to review the balance between Global and UK equities, the allocation to RAFI and consider investments in low carbon assets and any potential changes to the balance between active and passive investments.

    2. Advisors suggested that the balance between active and passive investments should remain as they were. It was noted that the weighting between active and passive were similar in Surrey to other comparable LGPS’s.

    3. Advisors and officers explained that the transfer of assets to the Border to Coast Pensions Partnership (BCPP) made an equity review timely and that it was important for the fund to consider long term strategy before transfer.

    4. It was noted that UK equities were heavily weighted towards oil and gas companies and that stock concentration was significantly higher in UK equities than in global equities. Advisors noted that there was a proposal to reduce UK equities to 20% of the allocation. It was also suggested that the allocation would be actively managed by the BCPP. Advisors noted that there was an agreement that UK equities should be actively managed to maximise returns.

    5. Advisors highlighted that MSCI Low Carbon Target Index was the preferred low carbon index.

    6. Advisors suggested that Trucost could undertake a peer analysis of comparable LGPS funds to ascertain their investment in low carbon assets and gain an indication on where the Surrey fund is in comparison with these.

    7. Members noted that the SPFC could work to guide the BCPP towards investment in low carbon assets by highlighting the issue as a key priority for the fund.

    8. Members questioned advisors on equity protection and whether the next steps were appropriate. Officers noted that the triggers were in place and advisors suggested that protection be proceeded to stage three. It was stressed that there was a continued strong rationale for equity protection.

    Resolved:

     

    That the Pension Fund Committee:

     

    1. Approved the reduction in UK equities in the portfolio from the current 46% to 20%, all in the active portion of the portfolio.
    2. Retained the current balance in the equity portfolio of 38% passive and 62% active.
    3. Approved the balance within the passive portfolio to be 16% global RAFI, 16% MSCI Global Low Carbon Target Index and 6% emerging markets.

     

    1. Approved further work for officers, Mercer and the Independent Advisor to consider the appropriate balance of the active global/regional element of the equity portfolio and negotiate with BCPP to enable this asset mix to be realised through the BCPP global or regional sub fund offerings.
    2. Noted the progress on the downside equity protection strategy.

     


34/18

INVESTMENT MANAGER ISSUES AND PERFORMANCE AND ASSET/LIABILITIES UPDATE

Minutes:

Declarations of interest:

 

None

 

Witnesses:
Neil Mason, Head of Pensions
Steve Mitchell, Mercer
Anthony Fletcher, Allenbridge
Sheila Little, Head of Finance

Key points raised in the discussion:

 

  1. Advisors noted that there were concerns with the performance of Aviva and that the stated objective of 4% performance levels was unlikely to be accomplished. It was suggested that the fund observe trend for the foreseeable future.

  2. Officers explained that they required power of attorney from the committee to act in the repatriation of Taiwanese Dollars (NTD) required the authorisation of the Pension Fund Committee.

  3. Members questioned whether the service would review other overseas positions. Officers noted that the service was discussing this issue with the custodian and that an update would be brought back to the Committee when this was concluded.

 

Resolved:

That the Pension Fund Committee:

  1. Noted the report.

  2. Authorised the Power of Attorney for Deloitte (Taiwan) to act on the Surrey Fund behalf as a tax agent in Taiwan and where appropriate in facilitating the repatriation of funds.

 

35/18

INVESTMENT STRATEGY REVIEW AND STATEMENT pdf icon PDF 120 KB

36/18

CASHFLOW ANALYSIS pdf icon PDF 229 KB

    Purpose of the report: A cash-flow analysis allows the Fund to ascertain a projection as to when benefit payments may exceed income. This information can influence both the investment and funding strategy.

     

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:
    Neil Mason, Head of Pensions
    Steve Mitchell, Mercer
    Anthony Fletcher, Allenbridge
    Sheila Little, Head of Finance

    Key points raised in the discussion:

     

    1. Members questioned the Quarter 3/4 total contributions and why they had significantly increased. Officers explained that the income management team had performed reconciliation of contribution balance whereby they allocated cash in to appropriate months which was sitting in the holding account and which had not been undertaken in the previous quarters. It was also suggested that an additional reason for high increase was as a result of some employers paying the deficit contribution at the year-end.

    2. Officers noted that they would bring quarterly reviews to the Committee to aid in the review of trends.

    Resolved:

    That the Pension Fund Committee:

     

    1. Noted the cash-flow position for quarters three and four.

     

37/18

PENSION FUND INTERNALLY MANAGED CASH STRATEGY pdf icon PDF 433 KB

    Purpose of the report: There is a large amount of unutilised cash in the pension fund account which is earning negligible returns. This cash could be better utilised investing through fund managers to yield greater return. The strategy below discusses this issue in detail.

     

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:
    Neil Mason, Head of Pensions
    Steve Mitchell, Mercer
    Anthony Fletcher, Allenbridge
    Sheila Little, Head of Finance

    Key points raised in the discussion:

     

    1. Officers highlighted the report, noting that unutilised cash could be better used by fund managers to yield greater return. It was proposed that the fund set up a collar for future investments of around £20 million. Officers noted that they would seek advice as to where to invest any cash that was outside of the £20 million collar.

     

     

    Resolved:

    That the Pension Fund Committee:

     

    1. Approved the Pension Fund Internally Managed Cash Strategy

     

    1. Will review the strategy on quarterly basis.

     

     

38/18

vLOCAL PENSION BOARD REPORT pdf icon PDF 219 KB

    Purpose of the report: This report is a summary of administration and governance issues reviewed by the Local Pension Board at its meeting of 23 April 2018 that need to be brought to the attention of the Pension Fund Committee.

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:
    Neil Mason, Head of Pensions
    Graham Ellwood, Vice-Chair Surrey Local Pension Board

    Key points raised in the discussion:

     

    1. The Vice-Chairman of the Board explained that the Board had noted that the administration performance had improved in the last quarter.

    2. The Vice-Chairman of the Board noted with concern the administration and monitoring of members in danger of breaching the annual or lifetime allowances and stressed that the Board would be working to address this in future. Officers noted that this was becoming a national issue and that, while it was the individual’s responsibility to resolve, that appropriate information should be provided to help resolve the issue.

    3. The Vice-Chairman of the Board noted that the Board would be working with officers on 50/50 schemes to work on how to better publicise these schemes to members of the fund as an option.

    4. Members questioned whether the Board had identified whether there were any substantial gaps in the CIPFA benchmarking report. Officers noted that this report undertook administrative benchmarking and that few other funds participated in this, limiting the level of results.

    5. Officers explained that there were recommended changes to the risk register which were highlighted in the Board report, which would be implemented by the service.

     

    Resolved:

    That the Pension Fund Committee:

     

    1. Approved the recommendations from the Local Pension Board in regard to the Administration Performance Report.

     

    1. Approved the recommendations from the Local Pension Board in regard to the Risk Registers.

     

39/18

CORPORATE GOVERNANCE SHARE VOTING pdf icon PDF 339 KB

    Purpose of the report: This report provides a summary of the Fund’s share voting process in Q4 of 2017/18 (1 January 2018 to 31 March 2018).

     

    Additional documents:

    Minutes:

    Declarations of interest:

     

    None

     

    Witnesses:
    Neil Mason, Head of Pensions
    Steve Mitchell, Mercer
    Anthony Fletcher, Allenbridge
    Sheila Little, Head of Finance

    Key points raised in the discussion:

     

    1. Officers and advisors introduced the report, noting that there were no significant updates from the previous report presented to the Committee. There were no additional comments by Members.

     

    Resolved:

    That the Pension Fund Committee:

     

    Noted the report.

40/18

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

41/18

NATIONAL POOLING UPDATE

Minutes:

Declarations of interest:

 

None

 

Witnesses:

John Harrison, Border to Coast Partnership

 

Key points raised during the discussion:

 

  1. A discussion was had between representatives of the Border to Coast Partnership and the Committee regarding the future transition of the Surrey Pension Fund portfolio to the BCPP and the conditions that were required relating to this transfer.

 

 

Resolved:

That the Committee:

 

1.    Noted the report.

 

2.   Approved in principle, the transition of the UK equity portion of the Surrey Pension Fund portfolio to the Border to Coast Pensions Partnership (BCPP) national pool when it has been established, assuming that the “necessary conditions” of governance have been satisfied.

 

3.   Approved the delegation of authority to the Director of Finance (Section 151 officer), in consultation with the Chairman of the Pension Fund Committee, to transition the UK equity portion of the Surrey Pension Fund portfolio to the BCPP, assuming that the “necessary conditions” of governance have been satisfied.

 

42/18

PUBLICITY OF PART 2 ITEMS

43/18

DATE OF NEXT MEETING